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As Safe as Houses

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As Safe as Houses

The Irish government’s recent decision to guarantee all deposits in the country’s 6 main banks and government-approved subsidiaries for the next 2 years, as well as increasing the amount guaranteed to €100,000, has already been duplicated around Europe. It is a move that brings welcome relief to owners of hard-earned savings accounts.

Several other European governments have also guaranteed deposits in their country, including the German, Greek, Danish and Spanish governments. Spain’s financial authorities have also followed the Irish example with savings deposited in Spanish banks now guaranteed up to €100,000 for the next 2 years.

In the UK, the government is about to increase the amount guaranteed by the Financial Services Compensation Scheme (FSCS) from ₤35,000 to ₤50,000, which while a welcome move, is considerably short of the Irish and Spanish government guarantees.

Many people are asking whether compensation schemes can offset debts (e.g. mortgages, credit card debts or personal loans) and savings when held in the same bank or building society.

If the savings and debt are held in the same UK bank that goes into liquidation, one can be used to offset the other. For example, if you hold ₤20,000 in savings and have a credit card debt of ₤5,000, your debt is offset against your savings leaving a total of ₤15,000 guaranteed by the FSCS. If you hold ₤50,000 in savings and have a mortgage totalling ₤150,000, the same applies – your mortgage debt is reduced by the amount of your savings to ₤100,000. Those with savings and debts in banks are in theory better off than those with just savings – for example, if you have a savings account with ₤60,000 in a bank that fails, the FSCS only guarantees the first ₤50,000 meaning you lose ₤10,000.

Different rules apply to building societies in the UK and in some, savings cannot be offset against debts. Terms and conditions vary depending on the building society in question and you should research these, particularly if you have large savings in a building society.

“The offset rule does not necessarily apply in all financial institutions,” says Ken Thorkildsen, Director of Obelisk Private Finance, “and I would advise savers to consult their bank or building society to find out the extra rules.” However, regardless of whether you also have debts with a bank, the relatively low amount covered by the FSCS means that those with large savings should make sure their money is guaranteed. “This may mean dividing the money between different entities or it may be worth considering moving your savings to another country with higher guarantees, although you may need a fiscal representative in that country,” comments Ken.

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