Personal Finance Action Plan: If Your Bank Goes Bust….

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Strain on the financial sector has been increasingly evident in recent years so much so that commentators even expected there to be a run on a bank in 2008 within the UK. Events of this nature only serve to highlight how we all need to be aware of what we should be doing if our bank is about to go bust, or if it announces it is in trouble.

Prepare for the worst

You should prepare for the worst when the going is good, so to speak. So, you aren’t worried about your bank at this time and there are no rumours of financial instability? Well, that does not mean you can rest on your honkers.

On the contrary it means you should be focused on an action plan of what to do if you access to money is suddenly cut off. It may be worth considering creating a ‘stash’ of physical essentials, for example a ‘stash’ of cash hidden somewhere only you know about. Be careful to stash any cash responsibly in a fireproof, secure tin or box. Other people may want to diversify their investments, and choose to invest for example in gold which won’t lose its value in a cash crisis.

Making claims

The Financial Services Compensation Scheme is something all UK residents are entitled to claim under if their bank or building society goes bust. Only authorised banks and lenders (like Wonga and Everline for example) are covered by the scheme, so you should always check whether your bank is authorised or not especially if you are thinking of a long term transaction like business loans or overdrafts. If not banking with that institution is riskier. This scheme guarantees 85,000 pounds of compensation to each individual who has lost money in the event of a bank or building society going under.

Prevention is better than cure

You should always remember that part of your action plan should reflect the prevention is better than cure approach. This means you can take steps now to mitigate any future losses. If you do so you are unlikely to be hit as hard by any banking crisis, so it pays to do a little research. It helps to know for example that money over 85,000 is not guaranteed under the Financial Services Compensation Scheme, so you may wish to diversify your portfolio of investments and invest in things that have a cash value, but are not adversely affected by any banking sector crisis.

One option for example is to buy gold or to invest in gold or valuable minerals. You could also choose to invest money in property, or in a business – this way you can expect to see a return on your investment. You should also check the individual application of the Financial Services Compensation Scheme to your portfolio of savings and investments. You may think you have several bank accounts all covered by the scheme, but one thing you absolutely need to check is if the bank is owned by the same parent group as this may affect your entitlement to make claims under compensation schemes in the event of a banking meltdown.

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