Who do you bank with? That question can be more complicated than it first seems. And ultimately, the answer could affect the security of your savings if your bank happens to go bust.
British banks and building societies are tangled up in a complex web of ownership. This means it’s not always obvious which banks are owned by which.
For example, if you bank with The Co-operative Bank and have savings with Smile or Britannia, you might assume that you had your money with two separate companies. But in fact, they’re all part of The Co-operative.
Why does ownership matter?
It all comes down to how your money is protected. The Financial Services Compensation Scheme (FSCS) can now compensate you for up to £85,000 (or £170,000 for joint accounts) within seven days if a financial institution you bank with goes into default. However, the compensation limits don’t apply per individual brand, but per authorised financial institution.
Unfortunately, it’s not always easy to work out what constitutes a ‘financial institution.’ If you bank with Lloyds TSB for example, and have savings with Cheltenham & Gloucester, you’re only entitled to £85,000 compensation between them as they share a deposit-taking licence.
We want the rules on savings protection to be made simpler so that protection is based on brand alone. We’d also like the FSCS to introduce measures to protect temporary high balances, for example – when people are in receipt of payment from the proceeds of a house sale.
When different means ‘the same’
Of course for the majority of people (me included), keeping their savings below the £85,000 threshold per financial institution isn’t much of a struggle. So you’d be forgiven for thinking that understanding the connections between different banking brands isn’t that important.
However, if you’ve had a bad experience with a particular bank and want to switch to another, you might unwittingly give your business to the same parent company. Confusingly, some banking brands that are owned by the same company are perceived very differently. For example, while current account customers awarded First Direct a table-topping 92% in our latest satisfaction survey, parent firm HSBC was rated at just 58%.
Were you aware of the FSCS and how it protects your money? Do you consider who owns a financial brand before deciding where to move your money?