When Banks Go Under

What to do if your money is trapped in a collapsed bank

If you're one of the hundreds of thousands of people who find their money frozen, unable to make any deposits or withdrawals as a result of recent bank collapses, you may be wondering what to do until you get your hands on it again.

Help is at hand. The Financial Services Compensation Scheme (FSCS) will deal with compensation claims. They are compiling a list of names and addresses of UK Icesave customers. It is hoped this will also include details of how much customers have in their accounts. Once they have this information, they will write to you. Keep an eye on its updated website for more information. Unfortunately, people with money trapped in some offshore bank accounts or saved via bonds and other financial products may have to wait much longer, if they are repaid at all.

Below is some helpful advice to get you started

Keep in touch with anyone you owe

Talk to your lenders, update them on your situation and try to stay within your budget until your savings are available again. Don't even think about skipping payments; all you will achieve is more debt and late payment charges on any loans or mortgages you default on, and these will be recorded as unreliable credit history, making it harder for you to get deals in the future. You can see your CreditExpert credit report, from Experian, for free - it contains a useful list of lenders you owe, so you don't forget to tell anyone.

Expect some compassion…

Lenders will be sympathetic provided you ask for help now. If you owe money on a bank loan or credit card, they could possibly freeze the interest or allow reduced repayments until your money is returned. However, any requests for fresh lines of credit would have to be approached on a case-by-case basis. HMRC can and does help customers facing temporary difficulties by allowing them additional time to pay.

…but you won't win them all

Unfortunately, you will not win over everyone so check out the small print on your contracts; you might only be covered for financial hardship as a result of redundancy - not the unexpected collapse of a bank.

Don't bank on property

If you are scheduled to exchange or complete on a new home and now can't get at your money, you have to hope that the vendor is sympathetic. If you have mortgage payments to make talk to your lenders you could try rescheduling the end of your mortgage or taking an interest free payment holiday. In both cases, you're likely to have to pay more in the long term but won't get into short-term trouble or damage your credit status.

Tidy up your finances

Don't forget to stop any direct debits or regular transfers into your frozen account - then look at ways you can cut back temporarily. If your bank's website is still up and running print out a statement so you can confirm precisely how much you have , or contact your broker or any middleman you dealt with and ask for a statement. You'll need it to prove that you really do have the money when you explain your situation and renegotiate payments.

Be aware that taking out new credit - or extending the repayment period in order to cut the amount you repay every month - will mean that you pay more over time and take longer to clear what you owe. Be sure you have done your homework and use comparison sites to get the best deal available and only sign up if you are sure it's the best way forward.

Finally don't despair

If you need support, you can turn to a counselling service offering free financial advice. Try the Citizens Advice Bureau, the Consumer Credit Counselling Service or National Debtline

If you found this article helpful, why not it and share it with others.