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Are some banks foreign to you?

Are some banks foreign to you?

Category: Money

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.
Have you ever checked our best buy charts and not recognised the names of some of the banks listed ?

Overseas banks often offer good interest rates, high enough to put those available from more well-known names in the shade.

But even though savers may be struggling to find a decent home for their savings among more familiar homegrown banks, the fear of the unknown means that many are reluctant to go down the route of using a bank they don't know.

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 that it will bail savers out 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.

In this situation, the outcome depends on whether the bank in question subscribes to the Financial Services Compensation Scheme (FSCS), which guarantees compensation should a bank fold. Banks with a parent company outside the EU have to set up a UK subsidiary, which must be a member of the FSCS.

Therefore, savers with banks such as ICICI, State Bank of India and FirstSave all enjoy the same level of protection as that afforded to savers with the more familiar high street names of Barclays and Nationwide BS.

The situation can be different for banks whose parent company is from within the EU.

In this instance, the bank can rely on the depositor protection scheme of its home country, which means you would have to apply overseas in order to get your money back. In theory, this should offer the same protection as the FSCS, as all EU banks are subject to the same rules covering the amount of protection available. All EU deposit protection schemes have to offer up to €100,000 protection per person per bank. In practice, very small companies that take on too many deposits could find themselves at risk, which is what happened in Iceland.

Banking with overseas providers won't suit everyone, but 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, and it could even broaden your savings options, too.

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