Will I be caught out by the bank deposit protection cut?

smashed piggy bank

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.

Your Comments

We should blame the EU Directive for this - €100k now approximates to £75k due to the exchange rate altering. The UK is not part of the Eurozone so should not be governed by this rule.