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The UK's biggest mortgage lender HBOS is the latest bank to suffer from the credit crunch. Experts fear other banks are at risk, but what would happen to your money in the event of disaster? We examine the safeguards in place
Panic levels continue to increase in the City as the Halifax Bank of Scotland, which has been badly hit by the housing market slump and global credit squeeze, could ask investors for up to £4bn at the company's AGM in Glasgow on Tuesday. In a similar move last week, the Royal Bank of Scotland unveiled plans for a £12bn rights issue.
The follows on from the record losses of $37bn recorded by investment giant UBS in early April. Such dramatic losses and the collapse of both Northern Rock and Bear Stearns have led many people to question how safe their money is in both UK and overseas banks.
Iceland is the latest country at risk of falling into recession after the country's interest rates were hiked to 15% and the Icelandic Krona lost more than 20% of its value last month. Their two major banks - Kaupthing and Landsbanki - have hit hard times and rumours of funding problems could result in a run on either bank - when panic-stricken savers rush to withdraw their cash - the same event that led to Northern Rock's downfall.
So how safe is your money with both UK and foreign banks? We assess the risks and look at the safeguards in place.
Your bank account
If your current account is in credit and your bank goes bust, you have no need to worry. Current accounts are - like savings accounts - covered by the Financial Services Compensation Scheme (FSCS) and you would be covered for up to £35,000 if your bank collapsed.
Bear in mind though that the £35,000 limit applies per institution, not account, so if you have your savings with the same bank as your current account, make sure the combined balances don't put you above the £35,000 threshold.
Your mortgage
If your mortgage lender were to run into difficulties, it wouldn't mean you would no longer have to repay the loan - your lender is likely to simply sell the debt to another company.
If you're currently on a fixed rate deal, you will be protected from increases until the fixed term expires - but when it comes time to remortgage you will find deals are more expensive than the last time you took a mortgage out. Also, lenders are tightening their criteria as a result of the credit crunch and favouring borrowers with larger deposits.
Your savings
The FSCS provides the ultimate safety net for Britain's savers and investors - savers are now entitled to 100% of their money up to a maximum of £35,000 per institution.
Some foreign banks - such as Kaupthing Edge and ICICI - are fully covered by UK watchdog the Financial Services Authority (FSA) and deposits would be covered under the FSCS scheme. But other foreign banks - such as Landsbanki - work under a less attractive 'passport' system, in which they run the equivalent of a UK branch from their home country.
In this case, if the bank were to go bust you would get part of the compensation from the home state's compensation scheme and this would be topped up by the FSCS up to a maximum of £35,000.
Your pension
If you put your money in stocks and shares, investment funds and pension funds, then these sums are classed as "risk based" investments - as opposed to savings - and a different level of protection applies.
If the product provider of an investment goes bust (e.g., a bank offering a Shares ISA), you'll get the first £30,000 back, plus 90% of the next £20,000 (a total of £48,000); while pension and life assurance funds get the first £2,000 fully covered, plus 90% of everything else in them.
Emma Lunn and Ben Rawson-Jones,
How Safe Is Your Money? - Current Accounts - Sky Money
Panic levels continue to increase in the City as the Halifax Bank of Scotland, which has been badly hit by the housing market slump and global credit squeeze, could ask investors for up to £4bn at the company's AGM in Glasgow on Tuesday. In a similar move last week, the Royal Bank of Scotland unveiled plans for a £12bn rights issue.
The follows on from the record losses of $37bn recorded by investment giant UBS in early April. Such dramatic losses and the collapse of both Northern Rock and Bear Stearns have led many people to question how safe their money is in both UK and overseas banks.
Iceland is the latest country at risk of falling into recession after the country's interest rates were hiked to 15% and the Icelandic Krona lost more than 20% of its value last month. Their two major banks - Kaupthing and Landsbanki - have hit hard times and rumours of funding problems could result in a run on either bank - when panic-stricken savers rush to withdraw their cash - the same event that led to Northern Rock's downfall.
So how safe is your money with both UK and foreign banks? We assess the risks and look at the safeguards in place.
Your bank account
If your current account is in credit and your bank goes bust, you have no need to worry. Current accounts are - like savings accounts - covered by the Financial Services Compensation Scheme (FSCS) and you would be covered for up to £35,000 if your bank collapsed.
Bear in mind though that the £35,000 limit applies per institution, not account, so if you have your savings with the same bank as your current account, make sure the combined balances don't put you above the £35,000 threshold.
Your mortgage
If your mortgage lender were to run into difficulties, it wouldn't mean you would no longer have to repay the loan - your lender is likely to simply sell the debt to another company.
If you're currently on a fixed rate deal, you will be protected from increases until the fixed term expires - but when it comes time to remortgage you will find deals are more expensive than the last time you took a mortgage out. Also, lenders are tightening their criteria as a result of the credit crunch and favouring borrowers with larger deposits.
Your savings
The FSCS provides the ultimate safety net for Britain's savers and investors - savers are now entitled to 100% of their money up to a maximum of £35,000 per institution.
Some foreign banks - such as Kaupthing Edge and ICICI - are fully covered by UK watchdog the Financial Services Authority (FSA) and deposits would be covered under the FSCS scheme. But other foreign banks - such as Landsbanki - work under a less attractive 'passport' system, in which they run the equivalent of a UK branch from their home country.
In this case, if the bank were to go bust you would get part of the compensation from the home state's compensation scheme and this would be topped up by the FSCS up to a maximum of £35,000.
Your pension
If you put your money in stocks and shares, investment funds and pension funds, then these sums are classed as "risk based" investments - as opposed to savings - and a different level of protection applies.
If the product provider of an investment goes bust (e.g., a bank offering a Shares ISA), you'll get the first £30,000 back, plus 90% of the next £20,000 (a total of £48,000); while pension and life assurance funds get the first £2,000 fully covered, plus 90% of everything else in them.
Emma Lunn and Ben Rawson-Jones,
How Safe Is Your Money? - Current Accounts - Sky Money
