The Financial Services Compensation Scheme (FSCS) has announced two important changes to the protection it gives people on cash savings that they hold in any bank or building society accounts covered by the scheme.
This includes the vast majority of mainstream current and savings accounts, including virtually all those available from the major UK banks or their subsidiaries that are authorised by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA).
The two changes to the compensation scheme are:
Reduced deposit protection limit
From 1 January 2016, the FSCS will compensate you for up to £75,000 on cash deposits held with any one bank in the event of its failure, calculated by totaling all the money you’ve spread across any of its different subsidiary banking brands that are registered under the same banking licence.
For instance HSBC and First Direct are registered under the same banking licence, so if you had £40,000 with one and £40,000 with the other, then you’d only be compensated for £75,000 of the total £80,000 you’d placed with them.
However, £80,000 split between two entirely different banking groups would be covered in full.
It is not always clear which banks are operating under the same licence. For example, Lloyds Banking Group and Halifax operate under different licences, despite ultimately being part of the same company.
The lowering of the deposit guarantee limit is due to the European Union Deposit Guarantee Schemes Directive. It fixes a limit of €100,000 (or the equivalent) across Europe. As the pound has strengthened against the Euro, the limit has come down.
The FSCS says it is not introducing the new lower limit until January 2016, in order to give people time to move their money to new accounts in order to ensure they’re still protected.
New protection for temporarily high limits:
Starting from 3 July, the FSCS is also providing a £1 million protection limit for temporarily high bank balances held with a bank, building society or credit union if it fails.
The change again comes from the European Deposit Guarantee Schemes Directive, and it offers people with some types of temporary high balances FSCS protection on up to £1 million for up to six months.