While a number of European banks have made it on to a ranking of the world's 50 safest banks, only two UK banks - HSBC and Barclays - have made it on to this list.
With bank stability an increasing concern for investors, finance monthly Global Finance has made its half-yearly update to its ranking of the world's 50 safest banks. The ranking is created through an evaluation of long-term credit ratings from Moody's, Standard & Poor's and Fitch Ratings, and total assets of the 500 largest banks worldwide.
The sovereign debt crisis in Europe coupled with uncertainty around the outcome of the Arab Spring has seen the credit ratings of European and global banks affected, and a number have moved down the ranking of the world's safest banks. In contrast, a number of banks - particularly in Asia and the Middle East - have benefited by moving up the ranking.
David Dale, head of wealth management at law firm Dickinson Dees, says: "The most generous interest rates are often offered by banks that are deemed to be the least secure. They need to offer an incentive to savers to use them and, while increased interest rates may sound tempting, investors need to be careful. In 2008, Icelandic banks were offering extremely generous interest rates and many UK savers ended up getting their fingers burnt. Investors need to weigh up whether better rates are worth the worry of trying to get your money back should a bank collapse."
World's 50 safest banks
Source: Global Finance, 22 February 2012.
Notes: *A tie is assigned when two banks with the same score have total assets within a $5bn range.
FINDING A SECURE HOME FOR CASH
While investors need to shop around for a generous rate, it is also important to research the credit worthiness of the bank you are leaving your money with.
"Taking the time to do a little research really can pay off and the three main independent rating agencies (Standard & Poor's, Fitch and Moody's) are a good place to start. Be warned, though, most banks have been downgraded over the past few years, so you may have to settle for a bank with an average rating," says Mr Dale.
The Financial Services Compensation Scheme (FSCS) offers protection to consumers for the first £85,000 held with an authorised UK bank. However, while some foreign banks operating in the UK benefit from this protection, others may subscribe to depositor protection schemes from their home country. Check your protection carefully.
Also remember that the £85,000 FSCS protection is offered per banking institution and not per account. This can get complicated as a number of banks in the UK share a banking license and therefore might share the compensation limit between them. If a person holds accounts with two or more firms covered by a single authorisation - for example two or more firms covered by the same Firm Reference Number (FRN) - then the FSCS will only pay up to the maximum limit of £85,000 in total, regardless of how many different institutions a person holds accounts with and/or the number of accounts that they hold.
Before you set up any new accounts, check what level of consumer protection would be available to you. A good place to start is the Financial Services Authority's website: (www.fsa.gov.uk/Pages/consumerinformation/uk_groups/index.shtml), which shows which banking groups currently operate shared authorisation.