• 3 MIN READ
The Safety of Your Money in the UK Banking System in 2023
June 23, 2023
In our latest articles, we discussed the current state of the British economy, news about tax cuts, and much more related to doing business in the UK. Most of our posts are highly relevant to businesspeople, SMEs, and startups.
But let’s now move on to something that is of concern not only to entrepreneurs but also to ordinary citizens – how safe money is in a UK bank account. In this article, we will focus on the banking system and the basic security measures that UK financial organisations take to keep our money safe.
Exploring the Case: Are UK Banks Safe?
At the moment, there are no particular signs of stress in the UK banking system. There are no queues at banks or exchange offices, no strong inflows or outflows of currency, and no other indications of problems. Moreover, given the nature of the issue this time, we cannot say that British banks will face difficulties.
The main issue was a rapid withdrawal of deposits – a usual bank run. SVB (Silicon Valley Bank) faced massive withdrawals because an unusually large number of depositors held amounts well in excess of the US insurance system limits, so it was the first to experience panic. Credit Suisse got into trouble mainly because it was unusually accident-prone, even by European banking standards.
Samuel Tombs from Pantheon Macroeconomics highlights that none of the major banks in the UK has operated similarly to Credit Suisse or has accumulated a significant and destabilising portfolio of fixed-income securities like SVB. Meanwhile, gilts make up less than 1% of the total assets of banks. Additionally, their exposure to risky wholesale funding is much lower than the levels seen in 2008.
Even if we make highly unrealistic assumptions about most people’s hassle threshold, it turns out that individual and company depositors can get a better return by investing in short-term gilts rather than keeping their money in an average bank account. But that, too, will not be a cause for concern.
Banks could also see increased competition from NS&I (National Savings and Investments). While the government is keen to increase its borrowing from retail depositors, it also recognises the need to avoid direct competition with private sector banks in an overly obvious manner. Overall, the current state of affairs seems to be positive, and your money is safe.
Do Not Exceed the Guarantee Level
Although there everything is all right with the security of UK banks, depositors are advised to take certain steps on a regular basis. These are things you should do routinely, simply because they are sensible and officially recommended. One of them is to ensure that the amount of money held at one bank does not exceed the government’s insurance limit.
In the UK, due to events in 2007, most savers are well-informed about the Financial Services Compensation Scheme (FSCS) and its limits. Under the FSCS, each person is insured up to £85,000 (or £170,000 for a joint account) with each bank, building society, or credit union.
If the amount in your savings account exceeds this threshold, it is reasonable to spread it across more than one institution to ensure full coverage. When allocating funds to different banks, bear in mind that some banking groups have several brands operating under the same banking licence. So, make sure you’re actually insured. Still, this information applies to the last 15 years, and the rules were not specifically designed for the current scenario.
For those involved in real estate transactions, be aware that the FSCS guarantees temporary high balances of up to £1 million for a period of six months. This eliminates the need for an intricate network of accounts solely to hold cash in such circumstances.
UK Banks in the Long Run
Let’s summarise what is happening:
- Some banks failed to meet their obligations because of mismanagement.
- Most banks are still absolutely safe.
- Some people withdraw their deposits in a usual runaway.
- To secure your funds, you shouldn’t exceed the guarantee level.
What all this means for banks in the long term is a more complex question. With each crisis, it becomes more and more apparent that banks are utilities.
UK banks are already heavily regulated, and if they fail to fulfil their most important function – being secure custodians and distributors of cash – the government holds the authority to intervene and close them down. In such cases, the government can and will transfer their operations to a competing institution without strict adherence to legal formalities and without considering the welfare of taxpayers.
Even if central banks are successful in containing the spread of contagion, credit conditions seem likely to tighten faster because of pressure from markets and regulators, stated Marco Kolanovic, Chief Global Markets Strategist at JPMorgan Chase & Co. He warns that we could be facing a “Minsky moment” – the sudden collapse of markets and economies mired in debt.
Secure Your Money with Payrow
To ensure that your funds are safeguarded, especially in uncertain economic times, it is vital to take appropriate measures. And there are basic rules to follow. You should stay informed through reliable financial sources, keep up to date with the latest news and seek advice from your accountant.
However, if you’re looking for extra security and peace of mind for your business’ finances, consider partnering with Payrow. Payrow is a UK-based company dedicated to supporting the growth and development of digital startups and SMEs. Our primary mission is to facilitate the adoption of fintech solutions, using modern technology and streamlining financial management processes.
Using Payrow’s services, you can improve your business strategy by reducing expenses and simplifying administrative tasks. We offer a wide range of services that enable you to optimise your valuable time and focus on the core objectives of your business. Our team of professionals is committed to providing extensive customer support throughout your business journey.
Unlock your business growth potential with Payrow!
Follow us on our social media channels: