Savings spotlight: don't get caught out by the cut in the compensation limit

money cut

From October, savers hit by the cut in the compensation limit can move up to £10,000 from their account without charge.

Your limit under the Financial Services Compensation Scheme - the maximum sum protected that every person has with any single bank or building society - will tumble from £85,000 to £75,000 from the start of next year.

You can only move as much as necessary to bring you back down to the new £75,000 compensation limit. And you must do it all in one go to ensure you don't face a penalty.

Thus, if you have £80,000 with one bank or building society, the maximum you can move is £5,000; with £85,000 you can move the full £10,000.

Losing out

Additionally, under Bank of England rules, banks and building societies can't force you to move all rather than just part of your money in a fixed rate bond and suffer a rate cut on your whole balance.

This applies even if your terms and conditions say you can't make partial withdrawals during the term.

You could lose out on the interest you expected when you move part of your money, however, because rates on offer now are lower than on your original bond.

For example three years ago you could pick up a five-year fixed-rate bond at 4% (3.2%). But the best two-year deal for the money you want to switch now is 2.35% (1.88%).

The window to move without paying a penalty runs until 31 December. Once you have put in a request, banks have up to two months to return your money.

More about