Recently 16 Spanish banks have been downgraded by Moodys, one of the big 3 credit ratings agencies, and both savers and borrowers both in the UK and in Spain are showing concern about what might happen if their particular bank goes bankrupt itself.
Let’s start with the UK first and then things will become clear for savings in Spanish Banks. In the UK, there is the Financial Services Compensation Scheme which is a “statutory fund of last resort” set up by the Financial Services Authority under the Financial Services and Markets Act 2000, which would compensate customers of “authorised financial services firms” in the event of their insolvency.
In the UK, thanks to this scheme, private savers are protected up to the first £85,000 of their savings. The scheme was improved in January 2011, thanks to some worrying times during the first few years of the crisis and the figure was increased from the original, first £50,000 of savings protected.
The UK saver has to be careful though, the FSCS terms dictate that each saver has up to 100% of £85,000 covered and by the way, if you have a joint account, then you will have double the cover i.e. £170,000, but care must be taken if you have savings in different banks. Different banks may have different named banks or branches within their corporate structure and as such, may be working under the same Financial Licence. As an example, if you had £85,000 saved with Bank ‘A’ and another £85,000 saved with Bank ‘B’ and the big corporate Bank ‘A’ owned Bank ‘B’, but just called it a different name, Bank ‘A’ may not have applied for separate licences for its supposedly 2 different banks. If that was the case, this would mean that you would still only be covered for £85,000, even though you were under the impression that you had covered yourself by splitting the risk and saving with 2 ‘different’ banks.
So, if you have savings of more than £85,000 in one account, it may be prudent to move your money around to other banks, and taking some advice from the “Money Savings Expert“, keep £83,000 in each differently licence bank, leaving the £2,000 buffer to save worrying about interest increasing your balance.
Are your savings safe in Spain?
In Spain and other Eurozone countries, Governments have all agreed that they will adhere to the same rules and have in place their savings compensation guarantees up to a value of €100,000. I would suggest that the same rules apply as in the UK and that you should find out if your bank owns any other subsidiary under the same licence, so as not to fall foul of the one licence ruling.
What if your bank went insolvent and you had a mortgage with them?
Sorry, but just as in the UK, some years ago a few banks were very close to closing their doors, but mortgages can be bought and sold. You will probably find in the small print of your mortgage paperwork, that any mortgage can be moved to another lender, although the same terms and conditions will still apply. This will mean that, unfortunately for you, you will still have to pay your mortgage. The good point is though, that if your bank went insolvent and you had your mortgage with them, you would not be asked to pay the outstanding mortgage there and then, as I said, it will continue with another lender.
So, have a think about your savings and the various rules and different banks, and maybe this article could save you some money in the long run…maybe even in the short term if things go pear-shaped…!!!