FA Downgrade SG 400

Paul Richardson, managing director of Surrey-based Reigate Financial Planning and Jonathan Fry, private wealth director of London-based jonathanfry, both stressed clients should not panic but think carefully about their cash management strategy.

Mr Richardson said: “While the Financial Services Compensation Scheme guarantees up to £85,000 of a person’s savings in each financial institution, I would never advise a client to put so many eggs in one basket.

“Consumer confidence is already weak but what Moody’s has done could make things even worse. Many savers will feel more exposed on the back of this news. Sure, the FSCS is government-backed, but the only way it can be tested is if a bank goes to the wall.”

Two of the dozen financial institutions were banks that have already received a lot of government - and taxpayer - backing: Royal Bank of Scotland and Lloyds Banking Group.

These, along with 10 other UK financial institutions were downgraded by Moody’s to reflect the reduced likelihood the UK government would bail them out in a future crisis.

According to an analyst note from Moody’s, the downgrades were triggered by the agency’s reassessment of the support environment in the UK, which has resulted in the removal of systemic support for the smaller institutions. The note said announcements made, as well as actions already taken by UK authorities, reduced significantly the predictability of support over the medium to long-term.

Mr Richardson added: “I always advise clients to mitigate their risk by spreading their assets around. If you are looking for an investment that is just as liquid as a savings account, you could try premium bonds, which are backed by the government and can be cashed in at any time.

“Many banks offer short term fixed rate accounts - where if you’re able to leave your money alone for a year, or even as little as six months, you can get a better rate of interest than on a standard savings account.”

Mr Fry said: “The recent downgrading by Moody’s emphasises the need of depositors to monitor deposit-taking institutions and respond accordingly.”

He said while many savers did not have the time or resources to undertake the rigorous checks necessary, they could use services such as jonathanfry’s Dynamic Cash Management service, which monitors institutional strength - using Moody’s ratings as well as other information.

Mr Fry added: “Where we feel that a deposit taker isn’t strong enough we move any cash held with them to stronger institutions.”