The safest bank in the UK

How do you make sure that the money you have in your bank account is safe?

Like many things, safety is a relative concept. Something that the 2008 financial crisis underlined is that even the biggest banks and financial institutions can find themselves in big trouble. A classic example is the 2008 government bail-out of the Royal Bank of Scotland (RBS).

So, how safe are the savings you keep in the bank? How do you evaluate a bank’s safety? And what can you do to minimise risk?

Are my savings safe? The Financial Services Compensation Scheme

Let’s start with the basics: even if our bank collapsed, most of us would get our savings back. This is thanks to the Financial Services Compensation Scheme (FSCS).

We have a longer guide about the FSCS but basically it guarantees that all money up to £85,000 held in an account from a fully licensed bank would be paid back to the account holder, even if the bank itself were to go bust.

So, if you have less than £85,000, you really only need to make sure that you hold your money with an institution that has a full banking licence from the Financial Conduct Authority (FCA).

Even if you are one of the lucky people who have more, you can just spread the money between different banks – as long as they are in different banking groups – so that you never go over the FSCS limit. For banks in the same group – such as First Direct and HSBC, or Lloyds, Halifax and Bank of Scotland, or NatWest and RBS – the limit is £85,000 in total for money you’ve deposited in any of its brands. So if you have more than this, pick a bank in a different group for anything above £85,000.

Credit ratings

But, FSCS aside, if your bank were to go bust, it still wouldn’t be pretty (it might take some time before the FSCS kicks in, for example). So if you want to know how solid your bank is, there are a few criteria you can look at.

One is credit ratings. Ratings agencies build their credit ratings by making careful judgment calls on how risky it is to lend money to a certain entity (it can be a bank, a company, a country).

In practice, the higher the rating, the less an institution is considered likely to default. The three leading ratings agencies are Standard & Poor’s, Moody’s and Fitch.

If your bank has a high credit rating, you can be reasonably confident of its financial health – with a caveat: like all the other criteria we are about to look at, credit ratings don’t give you 100% certainty that everything is fine. Nobody can do that.

Capital ratios

Capital ratios are another good indicator of a bank’s financial health. The capital ratio tells you what percentage of the bank’s capital is held in so-called Tier 1 Capital, against the total risk-weighted assets.

Tier 1 Capital refers to a bank’s “core capital”, such as cash, that remains once you take away all the potential liabilities.

The higher the capital ratio, the bigger the safety net the bank can fall on if things go wrong. According to Basel III (an international regulatory accord for the banking sector introduced after the financial crisis), the minimum capital ratio banks are required to hold is 8%.

Credit Default Swap rates

We know, all this jargon is starting to sound vaguely scary. But it’s easier than it looks, we promise.

In a nutshell, a Credit Default Swap (CDS) is a sort of insurance policy that an investor can take out against a company’s (in our case, a bank’s) default. You pay a premium and if the company does go bust, you get some money in return.

CDS rates, or premiums, tell you something about the financial health of a bank. It’s just like with your car insurance: the more likely your insurer thinks you are to cause an accident, the higher the premium will be.

Like credit ratings, CDS rates give you an indication of how likely a bank is to go bust. Or more accurately: they give you an indication of how likely the CDS provider believes the bank is likely to go bust. Just like with credit ratings, things can always go wrong.

Safe alternatives to a savings account

If you are looking for a safer place to store your savings, you are out of luck. Savings accounts are considered one of the safest options for savers, thanks to the FSCS.

Most other options imply some form of investment, and are riskier by definition. For example, you may think that buying property is safer; but actually, there are a ton of other risk factors that mean that you can get back less than you invested if you buy a house with your savings (the value of the area could diminish; there could be a fire; and so on).

However, investing options that are considered comparatively low-risk are gilts. These are considered pretty safe because the UK government has never defaulted on its debt.

Peer-to-peer lending can offer higher returns, but it’s still not as safe as a savings account.

Compare savings accounts

Table: sorted by interest rate, promoted deals first
Name Product Account type Withdrawals Min. opening balance Interest rate Apply link
Aldermore
Fixed-rate bond
Withdrawals not permitted
£1,000
1% AER fixed for 5 years
Go to site
View details
FCMB Bank (UK) – Raisin UK - 3 Year Fixed Term Deposit
FCMB Bank (UK)
Fixed-rate bond
Withdrawals not permitted
£1,000
0.9% AER fixed for 3 years
Go to site
View details
Aldermore
Fixed-rate bond
Withdrawals not permitted
£1,000
0.9% AER fixed for 4 years
Go to site
View details
NatWest
Regular saver
Withdrawals not permitted
£0
3.04% AER variable

View details
Royal Bank of Scotland
Regular saver
Withdrawals not permitted
£0
3.04% AER variable

View details
Gatehouse Bank – Fixed Term Green Saver
Gatehouse Bank
Fixed-rate bond
Withdrawals not permitted
£1,000
1.4% AER fixed for 5 years

View details
Shawbrook Bank
Fixed-rate bond
Withdrawals not permitted
£1,000
1.35% AER fixed for 7 years

View details
Hodge Bank – 5 Year Fixed Rate Account
Hodge Bank
Fixed-rate bond
Withdrawals not permitted
£1,000
1.35% AER fixed for 5 years

View details
Shawbrook Bank
Fixed-rate bond
Withdrawals not permitted
£1,000
1.35% AER fixed for 7 years

View details
Hodge Bank – 5 Year Fixed Rate Account
Hodge Bank
Fixed-rate bond
Withdrawals not permitted
£1,000
1.35% AER fixed for 5 years

View details
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