How safe are banks?

[watervole]

What are the odds of a major high street bank, such as Barclays, folding?

What kind of legal protection exists for people's savings?

Does anyone know?

I'd like to know just how safe my money is.

waveney and I are discussing the security of different types of long-term savings and whether money in a bank is guaranteed as a low-return, but high security option.

Comments

[vicarage.livejournal.com]

The FSA have a compensation scheme.

"If a bank or building society collapses, you may be at least partially protected by the Financial Services Compensation Scheme. The maximum compensation payment is £31,700 (100% of the first £2,000 and 90% of the next £33,000)."

So spread it round a bit.

I suspect no high-street organisation is under threat, because the repercussions to the rest of the community make it unacceptable for any one to collapse that far.

[wychwood]

I think that banks survive, as much as anything, on the confidence people have in them. But as vicarage says, there are big huge scary regulatory authorities there, too. Barclays, to take your particular example, is an institution I know a fair bit about; it has branches, subsidiaries and partners in a large number of countries, and posted profits of £5 billion in the last financial year. Small-scale crises are likely to be buffered by the sheer mass of money involved.

Also, although it lends out a lot of money, it takes a lot of security in return, and even if a big client went bust, they probably wouldn't lose much (if anything).
When's the last time a major bank collapsed? Can anyone think of an instance? Barings is the only one that comes to mind, and I'm not sure if that actually had to close. That was investments, though; if you're looking to invest in stocks and shares, that's a bit dodgier, because they can (and will) go down as well as up.

Banks aren't guaranteed safe, though; if you had a big crash in the financial markets, if we went into a giant depression, if inflation took off - you might lose your money. Or else find that it suddenly lost 90% of its value. However, that's going to be true of pretty much anything - look what happens to house prices, after all - and if it does, then I can't think of any way to be *really* safe. Gold may hold value well, but if everyone is at starvation level, no one is going to give you bread for it anyway. On the other hand, failing a major economic meltdown, you're probably ok with a bank, rather than something like a pension company, since those seem to collapse every five minutes.

Read the small-print, obviously. If you're looking at something with a very low rate of return, that isn't market-linked, and where you are always entitled to recover your original money even if the market does fall, I would think you'd be ok?

[steverogerson.livejournal.com]

I'm more interested in if one folds and you owe them money (the norm) do you get your debt wiped out?

[alexmc.livejournal.com]

i doubt it :-)

[steverogerson.livejournal.com]

drat

[ia-robertson.livejournal.com]

Financial Services act should provide some statutory compensation.

However, depending on capital etc, property may well be the best long term investment currently - rent can cover mortgage, and house prices tend to increase - despite what the building societies say - and once the mortgage is paid, the rent is a steady income stream!

Pension funds and ISAs can be quite "tax efficient" too.

Alastair.