I put the £3,600 allowance into a Bradford and Bingley one-year, fixed rate ISA bond at 6.2% at the start of this financial year. My thinking was that however perilous a state B & B is in, the government will effect a behind-the-scenes bailout rather than risk a repeat of the Northern Crock fiasco; and even if it does go bust, there's always the FSCS. Given that B & B's retail deposits are a relatively small total, the chances that the FSCS would actually pay out have to be higher than if a larger bank went down.

But if the worst did happen, would the FSCS only be obliged to refund my £3,600, or would they also have to pay me the £223.20 in interest I expect to receive next April? In effect, I have entered into a contract with B & B to lend them £3,600 for a year for a fee of £223.20. Would the FSCS be required to honour that if the bank goes down?

Edit - to insert missing question mark.

I would be very surprised if they covered anything other than the money IN the account at the time of the bank going under, so if B&B go bust before April 09, then you're looking at £3600 being covered only and even then I expect it'll be a long wait to get that back (so looking at lost interest there), plus I expect you would then have lost that years ISA allowance (ie wont be able to re-invest in another ISA)

If I were you I'd get that transfered into Leeds BS's Inflation Buster ISA! Currently 6.8% AER and realistically could be 8% later in the year!

From the Leeds BS site:


Interest on an Account

Interest earned on accounts at the time the shares or deposits become due and payable is covered by the Scheme (within the limit of the maximum payment). If a winding-up order against a society has been made by the Court, interest will immediately stop being paid on the society's accounts.


http://www.leedsbuildingsociety.co.uk/savings/fscs.html

Dave

(Note this is societies--not plc /banks)

I've got one of those bonds as well.

My expectation is that the bank will be rescued, and it will be business as usual. Although I believe they have enough cash for another year or two, so I'm not expecting imminent collapse. I hope.

Last year after Northern rock, I opened Monthly interest savings accounts wherever possible, at least you get some protection on the itnerest earned and are only exposed to 1 month's interest if the worst happened.

Monthly savings accounts are generally lower interest rates than annual accounts, on average about 0.25% for the ones I looked at.