If you're concerned about the safety of your savings, where should you stash your cash?
As the credit crunch starts to bite, how safe is your money in a savings account?
Icelandic banks have come into focus recently, with many fearing that these banks have overstretched themselves financially, and face the risk of default.
Trouble is, Icelandic Banks, along with other banks parented by non-UK institutions consistently top the best buy tables.
According to Moneyfacts, if you count Abbey, which is owned by Spanish bank Santander, four out of the top five instant access accounts are owned by foreign-run banks.
However, if you prefer to keep your savings firmly within the shores of this green and pleasant land, what's the alternative?
Here are the top six UK based accounts:
Account and Provider | Interest Rate (AER) | Minimum Balance | Ways To Operate Account | Notes |
|---|---|---|---|---|
6.15% | £1 | Internet | Rate is guaranteed to at least equal base rate until July 2009. | |
Scarborough Building Society Click Direct | 6.05% | £1,000 | Post (open online) | Rate guaranteed at least 0.25% above base rate in first year, then equal to base rate in the 2nd year. |
Asda Internet Savings | 6% | £100 | Internet | Includes a 0.75% bonus for the first 12 months. Rate is guaranteed to at least equal base rate until end of October 2010 |
Bradford and Bingley My Time Postal Account | 6% | £1,000 | Post | n/a |
6% | £1 | Internet | n/a | |
Northern Rock Tracker Online | 6% | £1 | Internet | Includes a 1.24% bonus for the first 12 months. Rate is guaranteed to be no lower than base rate until further notice. |
Source: Moneyfacts
Bradford and Bingley is top of the Brit picks, featuring in the table no less than three times. Its Internet Saver Issue 2 pays an interest rate of 6.15%, and is guaranteed to at least equal the Bank of England base rate until July 2009.
Asda Internet Savings, also provided by Bradford and Bingley, pays 6%, including a 0.75% bonus for 12 months.
In addition, if you're looking for safety, why not choose Northern Rock? Not one to do things by halves, the now-nationalised bank has gone from savers' taboo to one of the safest homes for your savings. Its Tracker Online account pays 6%.
A National Treasure
There's only one place as safe for your savings as Northern Rock. That's National Savings and Investments (NS&I). National Savings is backed by HM Treasury, so is guaranteed by the Government.
Unfortunately, NS&I lowered the rates on many of its fixed rate investments just this week, making otherwise juicy investments look rather ordinary.
For example, both their three and five year Index Linked Savings Certificates were reduced from RPI (currently 4.1%) + 1.35% AER to RPI + 0.25/0.35% AER respectively.
Translated into plain English, this means: the gross interest rate for higher rate taxpayers has been reduced from 9.08% to 7.41%. Basic rate taxpayers, who would have received 6.81% before Wednesday, now get an equivalent gross rate of only 5.43%. However, this is still an attractive option for higher rate taxpayers.
The Financial Compensation Net
If you are worried about safety, the Financial Services Compensation Scheme (FSCS) is designed to safeguard your money. If your bank were to go bust, the first £35,000 of your savings per UK financial institution would be protected in full.
In respect to Icelandic accounts, Kaupthing Edge deposits are currently held by UK company Kaupthing Singer and Friedlander Ltd, and qualify for the maximum protection of £35,000 under the scheme. This is the same for FBN and ICICI bank.
Money held in the Icesave savings (currently paying 6.05% on balances from £1) falls under slightly different rules, as the account is initially covered under the Icelandic Deposit Guarantees and Investor-Compensation scheme. This means that the first _20,887 (currently £16,398) is protected in full by Iceland's regulator.
However, savers also have a further guarantee under the FSCS, which offers 100% of the first £35,000, minus any payments made under the Icelandic scheme.
Either way, these accounts have exactly the same protection as UK deposits.
Take advantage of the fact that because of the credit crunch, banks are eager to get their mitts on your cash at the moment. And as long as you stay under the £35,000 compensation limit, your savings will be fully protected.
And finally, don't be put off by the gloomy headlines about the credit crunch. After all, your money won't earn any interest if it's hidden under your mattress.
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