Money Means guides are brought to you by FSCS, the people who protect your money from £1 up to £85,000 in UK banks, building societies and credit unions. Find out more.
We all want to know our money is secure, yet many of us are not completely sure about the safeguards there are in place. The good news is, should the worst happen and your bank collapses, the Financial Services Compensation Scheme is there to help, with its protection covering a wider range of financial products too.
The FSCS is an independent fund set up by the Government to protect consumers if UK regulated firms go bust. It offers additional protection for your finances.
While you may know about the protection in place for cash you have slotted away in banks and building society accounts, what you may not realise is that the protection offered by the FSCS goes way beyond cash deposits.
Here’s our guide to the cover offered by the FSCS.
Savings and current accounts Protection
If you have money in savings with a UK-regulated bank or building society, the FSCS deposit guarantee scheme offers protection for up to £85,000; this applies per person, per institution.
This means that if a bank or building society goes under, and you have money in a current account, savings account, cash ISA – or Help to Buy ISA – you will be covered up to this amount.
But as a saver, you need to be aware that the £85,000 depositor protection limit only applies per banking licence – and that some banks share the same licence.
For example, HSBC and First Direct fall under the same umbrella, so share combined protection. The same applies to the Bank of Scotland, Aviva, Halifax, Intelligent Finance, BM Savings, AA, Saga, Capital One and St James’s Place Bank – all of which operate under one licence.
With this in mind, it’s important to check licencing of the institutions where you have big sums squirrelled away, to ensure all your hard-earned cash is protected under the deposit guarantee scheme. If it’s not, you need to move it elsewhere.
For more information you can check your savings and current accounts are safe using the FSCS Protection Checker Tool visit the Bank of England website.
Credit Unions also enjoy the same protection as bank and building society accounts, meaning the FSCS will pay back £85,000 per person, per institution.
What about National Savings & Investments (NS&I)? Money saved in accounts and products offered by Government-backed NS&I enjoys 100% security (although these products are not protected by the FSCS). This includes premium bonds.
Things to note about savings and current account Protection:
- Don’t exceed the £85,000 limit If you’ve got more than £85,000 in one bank account, you should spread it around a little to ensure you are not breaching the limit. The key is to take advantage of FSCS protection across more than one banking group.
- Temporary high-balance protection after “life events” Since July 2015, up to £1million can be placed with one bank or building society and still be protected by the FSCS if the provider fails.
This limit applies to temporary high balances held within your bank, building society or credit union after a “life event” such as an inheritance, redundancy, or sale of your main residence.
While this can be a real help, the cover only lasts for up to six months, so remember to make a note of the end date in your diary. You can find lots of information on temporary high balances on the FSCS website.
- Joint savings and current accounts ProtectionThe £85,000 compensation limit applies to individuals – not accounts – so, for a joint account held by two savers, the maximum amount that could be claimed would be £85,000 each, providing total cover of £170,000.
- Overseas-owned banks protection If you have money saved with an overseas-owned bank, you need to check what protection is in place, as some institutions may be under the remit of the FSCS, while others will operate a “passport scheme” where you rely on protection from the the compensation scheme in their home country.
For example, Spain’s Santander bank is UK-regulated, so savings are covered by the FSCS. By contrast, savings accounts with France’s RCI Bank are regulated under the French compensation scheme. This currently entitles UK depositors to claim up to €100,000 from the scheme.
If you’ve got a risk-based investment, and the investment firm goes under, a different FSCS protection applies.
With investments, the level of protection is £50,000 per person, per authorised firm.
For example, if you lost money because an authorised firm gave you bad advice or negligently managed your investments, you would be covered for up to £50,000 if the firm fails.
Crucially, you are not protected if the companies you invest in go bust. The same applies if you buy a fund and it performs poorly. FSCS does not cover this. That’s the investment risk you take.
Home finance Protection
The FSCS also offers protect if you lose money through your dealings with home finance firms, such as mortgage brokers or those arranging and offering mortgage advice. For example, if a firm goes under, the FSCS offers protection of up to £50,000 for the advice.
Pensions and annuities Protection
The FSCS will protect 100% of your pension pot with a life insurer, or 100% of any investment life savings you hold, such as endowment policies or investment bonds. If, for example, you pay money into a stakeholder pension, this is usually covered under the category of “long-term insurance.”
If you have a Sipp (self-invested personal pension) and decide to hold some of the money as cash, you are normally covered under the standard £85,000 cover that savings get. If you choose to invest in stock market funds or other investment vehicles, you get £50,000 cover.
Under current rules, if an annuity firm fails, you will get compensation of 100% of your loss. For more information visit the FSCS website for more information.
If you take out insurance – such as home, car travel or life – and the provider goes under, the FSCS is there to help. Recently FSCS protected thousands of people who took out policies with Enterprise Insurance, which failed.
Compensation for compulsory policies, such as third-party car insurance, is unlimited. This means you get 100% of the premium back. For non-compulsory policies, such as home, travel and life insurance, you have cover for 90% of the money paid.
There’s lots of useful information on the FSCS website and at Money Saving Expert.
Things to note about insurance Protection:
- The actual level of compensation you receive from the FSCS will dependon the basis of your claim.
- The FSCS only pays compensation for financial loss.
- Compensation limits are per person, per firm, and per claim category.
Which products are not protected by the FSCS?
While FSCS protection is pretty extensive, there are still some products which do not fall under its remit. For example:
- Peer to peer lending FSCS protection does not extend to peer-to-peer lenders (even though they are now regulated).
- Christmas savings schemes FSCS Protection does not apply to Christmas savings schemes or clubs.