Business deposit account protection explained

In light of recent tumultuous events in the financial markets we show how to safeguard your Company monies by spreading the risk. £35k of your savings in any one UK bank account are guaranteed but there is a little known failing in the scheme.

With the banking crisis front page news each day we have obviously had worried clients contacting us regarding their own situation. Following the fall of Lehman Brothers, the Merrill Lynch merger and the HBoS takeover by Lloyds TSB the last thing anyone wants is a repeat of the Northern Rock saga where people panicked to get their savings out of what was judged to be a failing institution.

The savings guarantee applies to the first £35k of depsoits and whilst it is good to know that your personal savings are covered, for many of our Contractor clients the biggest worry is your business savings. In many cases this is where a large majority of liquid funds are held.

The savings guarantee
A UK based small business account is almost certainly covered to the same extent as the personal bank account guarantee which currently covers deposits of up to £35k. This is because a business account is covered by the small business guarantee if the business qualifies for two of the following three criteria:

• Your annual turnover is below £6.5m
• Your balance sheet total is below £3.26m
• You have less than 50 employees

For the time being the amount you can guarantee is capped at £35k but Darling is currently in talks to increase this amount to £50k (£100k for joint accounts) later in the autumn of this year. This begs the question of what action can be taken for those Contractors with company funds in excess of £35k.

The devil in the detail
Separate deposits held by banks that are individually authorised by the FSA each have the £35k protection so you can spread the risk. This applies not only to personal savings but also to business savings as long as you meet the above criteria but it has come to light that many clients are unaware of an important point that two banks that are owned by one parent company, where only the parent is authorised by the FSA, will only be covered for £35k over all of the bank accounts.

As such, it is worth spreading your deposits across different UK banks as long as they are individually authorised by the FSA. For example, having one account with Lloyds TSB and another one with HSBC each holding £35k of your savings will enable you to benefit from a guarantee on £70k. Do this across several different UK banks and you can rest assured that even if another giant topples, your money is safe.

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