Finance Banking

Risk Of Savings In Banking

Published at 07/14/2011 14:03:26

There is a famous quote that was once made by Benjamin Franklin which goes, “a penny saved, is a penny earned”, and this is the basic premise when it comes to savings banking; over time, small amounts can accumulate into huge savings. That said, how safe is your money really once you deposit it in a bank? We shall endeavor to answer that question in the course of this article.

So how do banks operate? Banks function by accepting deposits and then lending out this money to other institutions and individuals. The money deposited into a savings account should earn an interest, for the period held, which can vary from one bank to next. The risk faced by banks in the operation of business is mitigated mostly by deposit insurance schemes. This deposit insurance can vary from one region to the next.

For example, banks operating in the UK are regulated by the Financial Services Authority (FSA), which in the event of a bank collapse, would be able to protect account holders according to the limits set by the financial services compensation scheme (FSCS). This scheme currently covers up to 85,000 pounds, per person. In the USA, savings accounts are insured by the Federal Deposit Insurance Corporation (FDIC), which currently guarantees the safety of funds up to 250,000 dollars, per depositor per bank.  

Tips and comments:

Savings banking is not without its own risks; therefore, it would be wise to make a deposit that fits in with the deposit insurance provided by your banking institution. Another important factor to consider is, not all financial institutions are covered by these deposit insurance schemes. You should therefore check, with the relevant regulator, whether you’re prospective or current bank is covered by this scheme.