How do banks and building societies guarantee investors money will be safe in the event of liquidation?

Alan O’Sullivan, banking reporter with This is Money, says: All banks operating in the UK are required to sign up to the Financial Services Compensation Scheme, which guarantees savers’ money up to £35,000 per individual, per banking compensation licence.

Each of these banks pay an annual fee to the FSCS compensation fund, which is used to compensate savers in the unlikely event of a bank going bust.

Like all UK financial institutions, your money is safe with a smaller building society for one main reason: following the Northern Rock crisis, the UK government will not allow another institution to go belly-up for the sake of the reputation of the UK financial industry. Some of the smaller building societies may have to allow themselves to be bought out by larger rivals due to increasing operating costs and the credit crunch, but they will not simply collapse. For example, Nationwide recently bought out Cheshire and Derbyshire building societies as they had run into trouble.

Read more from the original post: How is savings safety guaranteed?

This entry was posted on Monday, September 29th, 2008 at 5:31 pm and is filed under Banks.