Is it safe to leave your savings in the bank?

With the biggest financial crisis in decades do we need to worry about our savings?

We are seeing financial institutions and companies collapsing nearly every day. One of the biggest investment banks Lehman Brothers collapsed last week, Merrill Lynch was sold to Bank of America, AIG has been given a $20bn loan to keep it solvent, and in the UK HBOS has been bought by Lloyds-TSB.

Alliance & Leicester is being taken over by Santander and the Cheshire and Derbyshire building societies are being taken over by Nationwide due to financial difficulties.

All this and the credit crunch are causing investors and savers to panic and to worry about how safe their money actually is.

If you have your cash in a UK bank or building society then the first £35,000 is protected under the Financial Services Compensation Scheme (FSCS). However, this is not as straight forward as it appears. Some banks have more than one “brand” and use the same banking authority. For example The Royal Bank of Scotland and NatWest are both part of the Royal Bank of Scotland Group and Birmingham Midshires comes under Bank of Scotland.

Post Office accounts are covered by this compensation system as accounts are run by Bank of Ireland and ING accounts are also covered.

The FSCS is largely untested as to date no UK bank has collapsed so it is not known how long it would take to make payments if it needed too.

If you have savings of more than £35,000 and want to keep it in a bank account, it would be wise to look to spreading your money through various banks ensuring you are aware of who is related to who.