What Barclays downgrade means for you

Barclays branchPA

Barclays Bank was one of a collection of major international banks downgraded by Fitch ratings agency yesterday. It revealed just how much damage the latest credit crunch has wreaked on the banks.

Barclays' rating was cut two notches from an AA– rating to an A. So if you bank with Barclays, should you be worried?

Markets are happy

There is a great deal of comfort to be drawn from the fact that the markets were unfazed, and the share price of Barclays actually rose after the news.

After-all ratings agencies are going on historical information - things the markets are already very well aware of. They know the European crisis has had a far-reaching effect on banks across the world. It was widely understood that the banks had taken a beating. And this is just the ratings agency catching up with everyone else.

An A rating isn't the same as AA-, but it's still a strong institution and is still considered a safe bet by the agency - just not quite as safe as it once was.

Safety net

The other thing to draw comfort from is that even if the worst comes to the worst, you are protected by the Financial Services Compensation Scheme, which will cover the first £85,000 on deposit and refund your money if something happens to any British bank.

It is worth, therefore, taking the precaution of making sure you don't have more than this sum with any one banking group, so you have a safety net in place if there are any surprises on the downside.

Essentially, this is a worrying sign of the fragility of the worldwide financial system and the effects of the latest credit crunch. But if you are a customer, you're unlikely to see any losses, and you are covered if you do.

So it's not time to start withdrawing the cash and sticking it under the mattress just yet.
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