New limits for savers—are you covered?
1st Jan 2015 Managing your Money
Savers are likely to be hit as Government rules have cut the protection on deposits by £10,000. What does this mean for you?
The government has cut by £10,000 the amount of savers’ money it will protect if a bank or building society goes bust.
All savers were previously protected if their deposits were £85,000 or less, but that ended on 31 December 2015 and the new limit is £75,000.
This means that anyone who has £75,000 or more in a bank account needs to find an alternative home for the remaining balance.
The government has defended the move by saying that the new limit is linked to European Union compensation limits. It claims the new limit will still protect more than 95% of all savers as the overwhelming majority of people have £50,000 or less in savings.
Joint accounts are covered up to £150,000 as long as the account is with an authorised bank, building society or credit union. You can check whether it is authorised here.
Life events
There is good news if you temporarily have a very high balance in your account for a short period of time—for example if you receive money from a house sale or you have been bequeathed a legacy or received a divorce settlement.
In these cases you will have FSCS protection up to £1 million for up to six months.
Why have the limits changed?
The change comes under the European Union Deposit Guarantee Schemes Directive. It fixes a harmonised limit of €100,000 (or the equivalent) across Europe.
When the level was agreed in 2010, that figure translated to £85,000. But because the euro has fallen against the pound, it is being set according to exchange rates today, the FSCS says.
What if I need to make a claim?
Savers called on the protection when Bradford & Bingley failed, and when the Icelandic banks crashed. It is backed by the Treasury but funded by the financial services industry.
If you do need to make a claim you can use the Financial Services Compensation Scheme (FSCS). It is a free service and is completely automatic and you should get your money back within seven days.
Are all banks and building societies covered by the scheme?
Banks and building societies in the UK are almost all registered with the FSCS—check on the bank’s website to see if it is.
However, some banks share a banking licence because they are part of the same banking group. Bank of Scotland shares a licence with AA, Aviva, BM Savings (Birmingham Midshires), Halifax, Intelligent Finance, SAGA, and St James's Place.
HSBC Bank and First Direct also share the same banking licence.
So in the event of a bank failure, if your savings were split between accounts at the same banking group, you would only be protected for the first £75,000 overall, even if you had three separate accounts.
So it is a good idea to check whether you have more than one account with a single banking group, and move some of your money if you do.
Savings Champion has a full list of the banks and building societies that share a licence. For more information click here.
Also, some overseas and European banks may not qualify for the FSCS scheme, so check first before you open an account with them. This is particularly important as foreign banks often top the best buy savings rate tables because they offer market-beating introductory rates.
The scheme does not cover deposits outside the European Economic Area (EEA), or in the Channel Islands or Isle of Man.
