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Mortgage holders warned over savings risk

Tue, 19 Feb 2008

Anyone who has a savings account and a mortgage with the same provider is putting their money at risk, it has been claimed.

Kevin Mountford, head of savings at moneysupermarket.com, explains that a "major flaw" in the Financial Services Compensation Scheme (FSCS) could mean that those who also save with their mortgage company could see their deposits disappear should disaster strike.

He said: "Take the case of someone with £35,000 saved and a £100,000 mortgage. Rather than be compensated by the FSCS with £35,000 to be invested elsewhere, you will find your mortgage reduced to £65,000 and have no savings - potentially leading to financial hardship over the ensuing months."

For this reason people should keep their mortgage provider separate from their savings account provider, he cautioned.

The FSCS was set up in 2000 as a compensation fund for customers of financial services funds . It will cover deposits in savings account of up to £35,000 if a bank goes bust.
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