Bank-phobic Britons hide £7bn in homes

By DAN HYDE
Updated: 04:31 EST, 7 January 2011

Banks are being rejected by hordes of Britons who keep a combined £7bn stashed in secret spots in their homes.

Out of the bank: Many savers are shunning banks and keeping cash at home

And it's not just pennies down the sofa, the UK population has an astronomical collections of notes simply lying about in draws, piggy banks and under mattresses, new research shows.

The £7bn figure does not include money in wallets or purses.

It is a damning indictment of the trust placed in banks, with a notable 4% of those questioned admitting that they keep more than £1,000 in cash.

One in ten say they 'believe' in the principle of keeping their savings in their own possession, rather than with banks.

But some blame must go to the paltry rates on offer on the High Street, where returns have hit historic lows.

The average savings account - even including online-only offers, which are usually better - now pays just 0.85%.

The research by the Financial Services Compensation Scheme (FSCS) has been carried out to alert savers to the very real safety and benefits they can get from using banks to store their money.

Since the beginning of January, savers have seen up to £85,000 of their money protected in the event of their holding bank or building society going bust.

It marks a considerable rise from the £50,000 individual limit that was in place until the end of last year.

The FSCS aims to return savers' money 'within seven days' if their bank collapses. It is effectively works as a last-line-of-defence insurance scheme for savers.

Mark Neale, chief executive of the FSCS, says: 'Even though rates are currently low, those wishing to save money should always do so with a bank, building society or credit union which is covered by the FSA, the UK financial regulator. It is vital that savers know their money is protected up to the new limit of £85,000.

- How to keep your savings safe: Everything you need to know

'By contrast, those deciding to keep money at home, whether as savings or for convenience, may not be covered by household insurance in instances such as burglary.

'Under new rules, if financial institution were to fail most customers will get their money in a few weeks, so there really is no need to stash it at home.'

Savings protection was thrown into the spotlight in 2008 when Northern Rock teetered on the brink of bankruptcy.

Since then, savers at foreign banks like Icesave have experienced problems regaining their money following a collapse. The FSCS hopes that the increased, Europe-wide limits will provide added peace of mind for savers.

Most major savings providers operating in Britain are now covered by the FSCS in full. This includes ICICI, State Bank of India and FirstSave – all of whom feature in This is Money's best saving rates tables.

However, Dutch bank ING is not covered by the FSCS. In the unlikely event of it going bust, UK savers would have to apply for their money via the Dutch scheme.