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Are some banks foreign to you?

Category: Banking
Author: Tim Leonard
Updated: 16/03/2018

Have you ever checked our best buy charts and not recognised the names of some of the banks listed?

Banks from overseas are increasingly making their presence felt on these shores and they often boast interest rates that are high enough to put those available from more familiar names in the shade.

But even though they may be struggling to find a decent homegrown home for their savings, the fear of the unknown means many savers are reluctant to place their money with brands they don't recognise.

The collapse of Landsbanki in 2008 left many savers who had internet accounts with the Icelandic bank's UK arm, Icesave, fearing that their money might be lost. Thankfully, the UK Government stepped in to ensure that none of the savers ended up out of pocket, but there are no guarantees it will do so again.

The saga has understandably sowed seeds of doubt into many savers' minds about what would happen to their money if the foreign bank in which it was deposited went bust.

What would happen depends on whether the bank in question is authorised in the UK by the Financial Conduct Authority. If it is, it automatically subscribes to the Financial Services Compensation Scheme (FSCS), which guarantees compensation of up to £75,000 should a bank it covers collapse.

This means that, even though some banks may sound foreign, they actually come with the same level of protection as their more familiar sounding counterparts. Indeed, banks with a parent company outside the EU have to set up as a UK bank, so there's little to worry in terms of lost savings.

Therefore, savers with banks such as Al Rayan Bank, ICICI, State Bank of India, Union Bank of India and FirstSave all enjoy the same level of protection as that afforded to savers with the more familiar high street names, such as Barclays and Nationwide BS. (Check out our guide to who owns who in banks and savings.)

The situation can be different for banks whose parent company is from within the EU, but they still offer a form of protection, allbeit not necessarily UK-based.

In this instance, the bank can rely on the depositor protection scheme of its home country (effectively its own FSCS). Each EU country's deposit scheme must meet the same criteria so they should offer the same level of protection. This is up to €100,000 or that country's currency equivalent.

This will include banks such as Ikano Bank, Fidor Bank and RCI Bank, all of which are set up from EU countries.

Some other banks with European parents have set up as UK banks, such as Bank of Cyprus UK.

Working out what you are happy with in terms of protection and researching the compensation rules relating to the bank in question will go a long way to putting your mind at rest.

It could also go a long way to broadening your savings options.

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Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.