Are Your Savings Safe?

We like to think we can get our hands on our savings whenever we need to but this may not always be the case.

The credit crunch and the ensuing debacle at Northern Rock has undermined confidence in the UK banking system giving many savers the jitters over the safety of their cash. Even the upgraded protection provided by the Financial Services Compensation Scheme (FSCS) has, in my view, done little to restore faith, with new compensation limits only a shade better than before.

But do we really have anything to worry about? Well, for starters, I should stress that all Northern Rock depositors got their money back when they asked for it.

Nevertheless I do worry about one clause that appears in the terms of conditions of some savings accounts. It gives the bank concerned the right to temporarily prevent us from getting our hands on the cash when we want it.

Don't get me wrong, banks, quite rightly, have the right to freeze accounts in circumstances where it is required by law or regulation. If there is a dispute over the ownership of the money held in the account, or if the bank reasonably suspects a transaction might be associated with criminal, fraudulent or terrorist activity then a temporary suspension seems perfectly reasonable.

Temporary Suspensions

However, some banks can suspend savings accounts for other reasons. They can temporarily take away your right to withdraw funds from your own account in order to allow the bank to `maintain appropriate liquidity levels' or to `protect [our] business interests as a whole'. And this suspension could last for a whopping 60 days.

These restrictions are shrouded in ambiguity. Several banks have been given the opportunity to clear this up, but so far none has responded. In the absence of an explanation, I can only assume these conditions imply that if the bank concerned were to run into financial difficulty, then a temporary suspension on withdrawals could be applied, allowing a period of time for it to attempt to resolve its predicament.

How comfortable would you feel if there was a possibility your bank could hang onto your cash if it had run into trouble?

Fair enough, the chances of this happening are very, very low, but there are other accounts which don't include this clause in the terms and conditions, and you might prefer to use an account without such a clause.

For example, online bank Egg has recently amended its terms and conditions to remove a clause which allowed a temporary stop on savings accounts to enable it to run its business 'with prudent liquidity levels'.

Egg told us this condition had been included in the small print since the bank was launched in 1998, at a time when such clauses were more commonplace than they are today and possibly when the bank wasn't as well established. Now that the company is owned by Citigroup, the largest bank in the US, the policy has been changed.

While this is encouraging news for Egg savers, other banks have failed to follow suit. Icesave, for example, states that "In very exceptional circumstances only, to enable us to comply with legal requirements and maintain appropriate liquidity levels, we may temporarily cease or limit withdrawals from accounts for up to 60 days." Likewise Birmingham Midshires "may limit the amount which may be withdrawn from or paid into your account if we think that it is necessary in order to protect our business interests as a whole..."

Meanwhile, Capital One incorporate the following similar condition: "To help us maintain prudent liquidity levels and to operate our business lawfully, we may, in exceptional circumstances, limit or even suspend withdrawals (including interest payments) from accounts for a period of up to 60 days even where we have already accepted your instructions to make a withdrawal from your account."

Worse still, you won't necessarily be notified in advance if a stop is going to be put on your account. And it's little comfort that your savings will continue to earn interest during the period, while instructions to withdraw will only be acted upon once the suspension has been lifted.

Read The Small Print

While it's true suspensions will only be resorted to in exceptional circumstances, not all accounts include this type of limitation on access. (Indeed, Northern Rock didn't.) This means you don't have to accept it if you don't want to. I would suggest you read the terms and conditions thoroughly before signing on the dotted line. That way you'll know exactly what you're getting yourself into.

More: Savings Guarantee Falls Short | Banks That Lie About `Instant Access' Savings |Compare savings accounts at The Motley Fool's savings centre.