Don't Panic If You Save With Bradford & Bingley!

How safe are your savings if you bank with Bradford & Bingley? What if you have savings with both Bradford & Bingley and Abbey? Are you still protected? 

A few weeks ago, I wrote Don't Panic If You Save With HBOS after The Fool was inundated with questions from readers about the safety of their savings with the bank.

Now that Bradford & Bingley (B&B) has hit the rocks, similar questions are coming in from worried Fools who save with B&B.

Are your savings safe?

Since last summer, the Financial Services Compensation Scheme (FSCS) guarantees savings of up to 35,000 per financial institution.

This means, if a bank collapses, as long as you have less than £35,000 of savings with that bank, you are guaranteed to get your money back.

The trouble is, different accounts - and even different banks - don't necessarily count as different institutions under the FSCS's regulations. In order to do so, banks must have separate registrations with the Financial Services Authority (FSA).

Unfortunately, as B&B no longer exists, there is no longer a separate licence for this bank. All accounts have been transferred to Abbey, and so fall under Abbey's FSA registration.

This means that, if you have £35,000 in a B&B account and £35,000 in an Abbey account, you are now only protected by the FSCS for one £35,000 chunk.

To put it another way, if Abbey were to go bust, you would only receive £35,000 back - not the full £70,000 of savings you had invested.

Don't Panic!

Remember, the FSCS scheme only comes into play when a bank goes bust.

And it is extremely, extremely unlikely that the massive Spanish bank Santander (which owns Abbey) would collapse. That is partly why it has been called upon to take on B&B's assets.

If there were any hint that this might happen, the Government would again be under enormous pressure to step in to protect savers' deposits.

So I think there is absolutely no need to panic.

But personally, if I had more than £35,000 in total with Abbey and B&B, it would put my mind at rest to transfer the sum over £35,000 to a different bank with a separate licence.

Which banks are connected at the moment?

Below, we list the big name savings providers that are grouped together under the FSCS's rules. Avoid having more than £35,000 saved in any one of the nine groups listed here in order to make sure you aren't caught out in a crisis.

(1) Lloyds TSB, Cheltenham & Gloucester

(2) Halifax, Bank of Scotland, Birmingham Midshires, Saga, The AA, Intelligent Finance

(3) The Co-Operative Bank, Smile

(4) Yorkshire Bank, Clydesdale Bank

(5) Royal Bank of Scotland, Direct Line

(6) Bank of Ireland, Post Office

(7) HSBC, First Direct

(8) Abbey, Cahoot, former accounts with Bradford & Bingley

(9) Alliance & Leicester

(10) Natwest

As you can see, even though Alliance & Leicester was recently taken over by Santander, it still retains a separate banking licence to Abbey and B&B.

Similarly, the HBOS group and the Lloyds TSB group have separate licences, even though they have now merged. This may change in the future however.

And NatWest - although owned by Royal Bank of Scotland - runs as a separate institution.

So, to be clear, you could have £35,000 with Yorkshire Bank in group 4, £35,000 with Bank of Ireland in group 6, and £35,000 with Abbey in group 8. But you can't have £35,000 with the Co-Op and £35,000 with Smile. (Well, you can, but the FSCS will only compensate you up to 35,000 for those two accounts.)

Best savings accounts to move to

If you do need to move your cash, what are the best savings accounts around at the moment?

The market-leader is Alliance & Leicester's eSaver at 6.6%. Remember, Alliance & Leicester is covered under a separate FSA licence from Abbey - so even though it is part of Santander, you could safely keep £35,000 with both Abbey and Alliance & Leicester.

But this account will charge you a month's interest whenever you make a withdrawal (except in July).

If you want easy access and have a large sum of money you want to protect, take a look at the Easy Access Deposit Issue 2 savings account from Anglo Irish bank.

This account pays 6,4%, so just 0.2% less than Alliance & Leicester. And, as Laura Starkey pointed out last week, recent changes to the Irish savings protection scheme means that any UK saver whose money is held with Anglo Irish will enjoy roughly £80,000 worth of deposit protection. That's more than twice the £35,000 protection offered by the UK's own FSCS!

Good news

Finally, some good news: if you have joint savings accounts with a partner or spouse, the FSCS's guarantee is doubled to £70,000 per institution. Remember, though, that this is common sense rather than kind-heartedness - twice the protection can only be offered to twice the number of individuals, so it only applies if your account is officially in two names.

> You might be hit by similar problems if you try to transfer a balance from one credit card to another. Read When Balance Transfers Go Bad to see which cards are linked.

> Visit The Motley Fool's Savings Centre for a great range of savings accounts.