However, this review will concentrate more on answering the question of whether our savings are secure enough in the financial institutions in addition to analysing different ways to mitigate the risks posed on savings.
The first step in securing your savings is to ensure that the savings account run by an individual is regulated by the government of UK through the FSCS scheme. This will guarantee an amount of 85000 pounds for every account held in a financial in the event of failure of the financial institution.
In some cases, a few banks in the UK which are owned by foreign countries use the passport kind of scheme. Therefore individuals should review stability of their home country before saving since this will act as their guarantee in the event of failure of the financial institution.
Moreover, two individuals who operate a joint account are entitled to a compensation of 85000 pounds each in the event of collapse of a financial institution.
Therefore, a financial institution in reference to compensation refers to those registered with FSA. Individuals need to search on those banks that are linked in the FSA website since compensation will be paid to each institution. In the event of takeover, compensation will be dependent on the date of opening of the savings account.
Its quite clear that the maximum compensation paid to each account is 85000 pounds, the technique of spreading savings should be adopted in order to protect your savings. This basically means that if an individual operates a savings account with less than 85000 pounds, he or she is within the maximum limit of compensation hence their savings are safe.
It is advisable for an individual to spread the savings across several banks since compensation may take time before it matures and yet everybody has daily expenses to meet.
For individuals who hold savings of more than 85000 pounds, the golden kind of rule stipulates that they should spread the excess amount to several accounts in different institutions.
However, persons with large savings in separate financial institutions can spread the risk through operating several competitive forms of accounts, each holding a maximum of 85000 pounds.
In addition, other methods of ensuring safety of your money held in banks, is through saving in banks owned by a state. This is because such banks have almost 100% chance of survival since their collapse would mean that the national government has gone bankrupt.
Moreover, people with debts should ensure prompt repayment since the interest charges on debts are higher compared to interest earned on savings.
Further, an individual should opt for high rates of repaying mortgages since these increases the savings after tax and ultimately reduces costs which in extension increases savings.
Also, the option of purchase of a tax certificate which allows self-employed kind of people to pay tax in advance. What this means is that it acts as a prepayment of expenses due and in extension saving with the government.
In summary, safety of savings is today in any financial institution is not 100 per cent guaranteed since we have witnessed the takeover or merger of many financial institutions, for example Northern Rock. Hence citizens need to adopt measures like spreading savings across financial institutions and repaying their debts among others stated above in order to ensure safety of their savings.
