Will I be caught out by the bank deposit protection cut?
From 1 January 2016, the amount of your savings protected in the event of bank default will fall from £85,000 to £75,000. This means that if your bank goes bust, the Financial Services Compensation Scheme (FSCS) will ensure you recoup up to £75,000 (or £150,000 for joint accounts).
Broadly, the limit applies to all savings within a single financial institution. So if you have more than that amount across several accounts with different providers owned by the same parent company, you will still only receive a maximum of £75,000.
The tricky bit is identifying which deposit-takers count as one financial institution. Counter-intuitively, the limit applies not to each bank or each account, but to all providers under the same registration with the Financial Conduct Authority (FCA).
A lot to lose
One example provided by money.co.uk cites HSBC and First Direct, which is part of HSBC - if you have savings of more than £75,000 across both these providers, you will not receive full compensation if HSBC goes bust.
Other examples (among many more) grouped under shared registrations include:
- Bank of Scotland, Halifax, Intelligent Finance, Birmingham Midshires, AA and Saga;
- Barclays, Standard Life Cash Savings, The Woolwich;
- The Co-operative Bank, Smile, Britannia; and
- Nationwide, Cheshire Building Society, Derbyshire Building Society, and Dunfermline Building Society.
Although 95 per cent of savers will likely be completely protected by the new limit, money.co.uk editor-in-chief Hannah Maundrell warns that 5 per cent - about one in 20 - have 'a lot to lose' if their bank or building society goes under.
'The government seems to be focusing on privatising its assets,' says Maundrell. 'They were left shouldering a heavy load after the last financial crisis so we can't rely on them to bail out any bank, building society or credit union that fails again, so you need to make sure your money is fully covered by the FSCS.'
As of July 2015, up to £1 million will also be protected for up to six months if it has to do with a specific life event - for example including the proceeds of a sale, insurance payout, redundancy pay or any money won from a divorce, among other things.
The Financial Services Compensation Scheme is the compensation fund of last resort for customers of authorised financial services firms. If a firm becomes insolvent or ceases trading, the FSCS may be able to pay compensation to its customers. Limits apply to how much compensation the FSCS is able to pay, and those limits vary between different types of financial products. However, to qualify for compensation, the firm you were dealing with must be authorised by the Financial Services Authority (FSA).
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.