Best Savings Rates
Advice, help, information and guidance on savings, interest rates, and savings tax advice.

High Interest Savings Account - Risk and Reward

best savings rates by AnnaIf you are looking for the best savings rates, please don't start with a savings account. This is the worst thing you can do.

Start by paying off your debts with any spare cash. These will be charging you extremely high interest rates, and any interest earned on your savings will be far outweighed by the interest being paid to the providers - so please pay off your store cards and credit cards first. OK, having done that,  where do we go next for the best deals and rates? Well let's look at risk and reward first! Many years ago I would never have dreamt that a bank could fail, but that was before Northern Rock and Bear Stearns.

Best Bank Savings Rates - UK Banks

As with trading and investing, saving comes with it's own risk and rewards. It's no good finding the best savings rates, only to find out later that the lender has gone bust - unlikely I know, but it does happen, particularly in today's market. As a general rule, the higher the risk then the higher the reward. Provided the lender is signed up to the Banking Code, then the first £35,000 of your capital in the UK is protected, and you would receive 100% of this back should the bank fail under the FSCS scheme ( Financial Services Compensation Scheme ). This is an independent fund set up by the financial institutions and regulated by the FSA ( Financial Services Authority)

This amount is per institution, not per account, other than joint accounts which are then treated as separate accounts for this purpose. So in the case of a joint account you would receive £70,000. This is an important point, as if you have several accounts with the same bank or building society, you would only be protected up to the first £35,000.

Now what appears quite simple at first sight, is actually a great deal more complex. In today's market of mergers, acquisitions and takeovers, many banks own one another. The level of protection is defined by whether the company is independently registered with the FSA. For example if you had an account with each of the following which are all owned by the HBOS group, then you would only qualify for £35,000 in total. Halifax, Bank of Scotland, Saga, The AA, Birmingham Midshires and Intelligent Finance. The same situation would apply to HSBC and First Direct, or LLoyds TSB and Cheltenham & Gloucester. In each case you would only be guaranteed a 100% return on £35,000. So what about overseas institutions?

Best Bank Savings Rates - Overseas Banks

This is even more of a complex area than the UK compensation scheme above. In general there are three ways that overseas banks provide compensation schemes as follows :

Under the FSCS scheme outlined above

Under their own 'home' scheme

A mixture of the two often called the passport scheme

If your savings are with a bank or financial institution which provides compensation under its own home scheme, then it is entirely possible that the amount of protection offered could be considerably less than £35,000. In addition the bank will not be regulated by the FSA which is a concern in itself. Under the passport scheme and in the event of a bank collapse, you would need to make two claims, one in the UK, and one in the home country - a time consuming and costly exercise. If you would like details of all the banks currently covered by the FSA, please follow the link here - list of banks.

Over the last few months there has been a considerable debate about the safety of consumer savings, particularly in the UK. A rise in the threshold level from £35,000 to £100,000 has been mentioned, but at the moment it seems unlikely to be adopted. For the time being, you are only guaranteed £35,000, so please remember this when saving. It will probably never happen, although personally I did have a broker go down many years ago. Fortunately I was protected and got back 100% of my account which was below the threshold, so you have been warned!

Now let's look at some of the best products and accounts and where to put your money to get the best bank savings rates .

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