How banking mergers affect the safety of your savings

By Kevin Peachey Personal finance reporter, BBC News

Savings rates have been at low levels since the recession

Savers with money in the Northern Rock bank have now lost the government's 100% guarantee on their deposits.

As with other financial institutions, the first £50,000 of savings is protected.

The importance of the safety net for peoples' savings has been highlighted by a series of mergers and takeovers between financial institutions.

The stress of the credit crunch has led to a number of institutions pairing up, especially building societies.

The first £50,000 of any saver's cash is protected, per institution, if a bank or building society goes bust.

So someone's total level of cover can be reduced if they have accounts in both of the merging societies.

The Financial Services Compensation Scheme (FSCS), which provides the insurance for savers, charges a compulsory levy on the UK's financial services industry to provide the compensation if a UK bank or building society goes under.

The rules

The government says the current scheme covers 98% of accounts, and the government's actions during the banking crisis have suggested it would in fact guarantee all savings.

BUILDING SOCIETY MERGERS Nationwide and Derbyshire Nationwide and Cheshire Skipton and Scarborough Yorkshire and Barnsley Nationwide and Dunfermline Yorkshire and Chelsea Skipton and Chesham Coventry and Stroud & Swindon

In simple terms, the compensation system formally covers £50,000 of savings per person in any UK bank, building society or credit union.

Some customers with hefty savings have previously divided their money between different banks to be sure it is all safe.

But the mergers in the financial industry have not always left it obvious whether the savers have now become the customers of just one bank or society.

Savers can end up with two accounts which still look as if they are with different banks, but which actually now come under the same authorisation of the Financial Services Authority (FSA).

Alternatively, the names of some institutions can be very similar but can in fact have separate authorisations.

The key is the authorisation of an institution with the FSA.

The table below shows how this works.

PARENT BANK	AUTHORISED INSTITUTION	BRANDS
Source: FSA * Unlimited protection until 24 May
HSBC	HSBC Bank	HSBC, First Direct
	HSBC Private Bank UK Ltd	HSBC Private Bank UK Ltd
	HFC Bank	HFC Bank
	Marks & Spencer Financial Services	Marks & Spencer Financial Services
	HSBC Trust Company	HSBC Trust Company
Barclays	Barclays	Barclays Bank
	Standard Life plc	Standard Life Bank
	Barclays Bank Trust Company	Barclays Bank Trust Company
Royal Bank of Scotland Group	Royal Bank of Scotland	Royal Bank of Scotland, Direct Line (savings), Child & Co, Drummonds, The One Account, Lombard, Holt's
	NatWest Bank	NatWest Bank
	Coutts and Co	Coutts and Co
	Ulster Bank	Ulster Bank
	Adam & Company	Adam and Company
Lloyds Banking Group	Lloyds TSB Bank	Lloyds TSB, Cheltenham and Gloucester Savings
	Bank of Scotland (HBOS)	Halifax, Bank of Scotland, Bank of Scotland Private Banking, Birmingham Midshires, Saga, Intelligent Finance, Capital Bank, St James's Place Bank
	Scottish Widows Bank	Scottish Widows Bank
	Lloyds TSB Scotland	Lloyds TSB Scotland
	AMC Bank	AMC Bank
	Lloyds TSB Private Banking	Lloyds TSB Private Banking
Santander	Santander	Santander, Cahoot
	Abbey National Treasury Services plc	Abbey National Treasury Services
	Alliance & Leicester	Alliance & Leicester, Alliance & Leicester Commercial Bank, Moneyback, Honeycomb
	Cater Allen	Cater Allen
National Australia Group	Clydesdale Bank	Clydesdale Bank, Yorkshire Bank
Allied Irish Banks	AIB Group (UK)	AIB Group (UK), AIB (GB), First Trust
Co-operative Bank	Co-operative Bank	Co-operative Bank, Smile, Britannia
	Unity Trust Bank	Unity Trust Bank
Northern Rock*	Northern Rock	Northern Rock
Zurich Bank	Dunbar Bank	Dunbar Bank
Nationwide Building Society	Nationwide Building Society	Nationwide, Derbyshire Building Society, Cheshire Building Society, Dunfermline Building Society
Citi	Citibank International plc	Citibank International
	Citibank NA	Citibank
	Egg Banking plc	Egg
Skipton Building Society	Skipton Building Society	Skipton Building Society, Scarborough Building Society
Tesco Personal Finance Group Ltd	Tesco Personal Finance	Tesco Personal Finance, Tesco Bank, Tesco Banking and Insurance
Yorkshire Building Society	Yorkshire Building Society	Barnsley Building Society, Yorkshire Building Society

If you have up to £50,000 with different authorised institutions, then all your money is safe.

For example, if you have £50,000 saved with Barclays and £50,000 with HSBC Bank, all of this would be protected as the rules stipulate cover for deposits per customer and per institution.

However, if you have £50,000 in accounts with two different brands (in the same block in the final column) with the same authorised institution, then only £50,000 is covered. This is because they are authorised with the regulator under one named institution.

For example, if you have £50,000 with HSBC and £50,000 with First Direct, then only £50,000 of your savings are in the safety net. The same would be true if you have £50,000 with the Halifax and £50,000 with Birmingham Midshires.

David Black, banking analyst at Defaqto, said that it was a good idea for savers to have a "spring-clean" by checking where their deposits are held.

"You should keep just below £50,000 because of interest, and it is also worth checking for peace of mind and to make sure you are getting a good deal," he said.

Some pensioners, he said, would have substantial balances in banks and building societies owing to inheritances built up over time.

Rock change

The separate unlimited guarantee with Northern Rock, which effectively collapsed in the autumn of 2007, ended on 24 May, following the split of the nationalised bank into two.

Different banks run different brands which is key to the scheme

The 100% guarantee, which was always intended as a temporary measure, will continue beyond 24 May for money currently held in fixed-term accounts which mature after that date.

The explicit formal guarantee for Northern Rock saw it draw in billions of pounds of extra money from savers looking for a safe home for their cash as the banking crisis unfolded during late 2007 and 2008.

This prompted complaints from building societies who said that competition from the Northern Rock, and the other state-backed savings body National Savings & Investments, was unfair.

Societies have found it difficult to attract new funds and this has been exacerbated by interest rates at historic lows.

Some also suffered from previous decisions to lend to commercial property developers or to invest in Icelandic banks.

In February the Chesham, the UK's oldest society, agreed to be taken over by the Skipton, and last December the Yorkshire agreed to take over the Chelsea.

Since 2008 the Dunfermline, Scarborough, Barnsley, Cheshire and Derbyshire building societies have also had to be taken over or be rescued.

As a result, many savers who now have savings over the protection limit in a newly merged institution would need to spread their savings for guaranteed safety when a "cooling-off" period ends - for many at the end of December 2010.

For example, in one of the biggest deals, the Co-operative Bank and Britannia Building Society merged, and so their separate authorisation has ended. Again, customers who had accounts with both before the merger have full protection on both sets of savings until 30 December.

Another major change in the banking sector is the growing market share for Santander. It has taken on the Bradford and Bingley's savings customers. However, savers with Alliance and Leicester - which has also been taken on by Santander - still have separate authorisation, though this is likely to change soon.

The compensation scheme was brought into sharp focus as a result of the collapse of high-profile banks such as Icesave.

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