The rules protecting you and the massive loopholes in them
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We all want to know our hard-earned cash is safe, yet many of us are not clear on what safety net is in place.
As a saver, the main thing you need to familiarise yourself with is the Financial Services Compensation Scheme (FSCS) .
This is an independent fund set up by the Government – and regulated by the Financial Conduct Authority (FCA) – to protect your money should your bank or building society go bust.
January 31, 2018, marked the one-year anniversary of the move by the FSCS to increase the limit on cash savings back up to £85,000 (up from £75,000).
While you may have nowhere near that much squirrelled away, it’s important to understand exactly how the FSCS scheme works – and whether your money is safe – should the worst happen.
How does the FSCS work?
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If your money is in an official UK financial institution, the FSCS deposit guarantee scheme offers protection up to £85,000. This applies per person, per institution.
As a saver, this should offer great peace of mind, as it means money in a current account, savings account, cash ISA or help to buy ISA is covered up to this amount in the unlikely case your bank or building society collapses.
What about joint accounts?
Joint accounts get double the cover because each account holder is entitled to compensation up to the maximum FSCS limit.
This means accounts held in joint names receive £170,000 cover per separate institution.
Beware of shared banking licences
While this may sound simple enough, what you need to realise is that the £85,000 depositor protection limit only applies per banking licence.
Hannah Maundrell from Money.co.uk , said: “Bank limits should be quite easy to navigate, however, it’s made complicated by the fact FSCS cover is shared between banks that operate under the same FSCS licence.”
For example, HSBC and First Direct fall under the same umbrella, so instead of savings in the bank being guaranteed separately, a combined total of £85,000 is protected by the compensation agreement.
Maundrell said: “If you were to have £85,000 in savings with HSBC and £85,000 in an account with First Direct, you would only be eligible for a maximum of £85,000 in compensation if the group were to go bust.”
This could pose a problem for someone with big sums squirreled away, as this many mean that not all of their cash is protected.
Rachel Springall from Moneyfacts , sais: “While this may not be an issue for savers with smaller balances, it could be an issue for those with significant savings For those in this situation, it’s important to take action.”
Don’t put all your eggs in one basket
If this is the case, you need to spread cash around so you don’t exceed the limit in any one account.
The key is take advantage of FSCS protection across more than one banking group.
So who owns which bank right now?
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If you’re not sure who exactly you’re banking with at the moment, check out the list below. All of the following banks count as one.
Bank of Cyprus UK
Bank of Ireland UK, Post Office, AA Financial Services
Bank of Scotland, BM Savings, Birmingham Midshires, Halifax, Saga
Barclays, Standard Life Cash Savings, The Woolwich, (ING Direct UK has now been sold to Barclays and re-branded Barclays)
Citibank
Clydesdale Bank, Yorkshire Bank
The Co-operative Bank, Smile, Britannia
Coventry Building Society, Stroud & Swindon Building Society
HSBC, First Direct
Lloyds, Lloyds Bank Private Banking, Scottish Widows Bank
Nationwide, Cheshire Building Society, Derbyshire Building Society, Dunfermline Building Society
NatWest
Royal Bank of Scotland
Sainsbury’s Bank
Santander, Cahoot, (Alliance & Leicester was taken over by Santander who also own the now rebranded Abbey, as well as Cahoot and Asda banks)
Skipton Building Society, Scarborough Investments Direct
Tesco Personal Finance PLC
TSB
Virgin Money
Yorkshire Building Society, Barnsley Building Society, Chelsea Building Society, Norwich & Peterborough Building Society
Keep an eye out for changes
It’s worth noting that banks and building societies merge frequently, so you need to keep a regular check of whether your savings are fully protected.
What about NS&I?
Money saved in accounts and products offered by Government-backed National Savings & Investments (NS&I) – including premium bonds – enjoys 100% security.
What about overseas-owned banks?
If you have savings with an overseas-owned bank, you need to check what protection is in place.
Banks regulated in other European Economic Area (EEA) member states can operate in the UK without UK regulation. This is called “passporting” and means you rely on protection from the home government.
For example, Spain’s Santander bank is UK-regulated so savings are covered by the FSCS.
However, savings accounts with the French RCI Bank are regulated under the French compensation scheme. This currently entitles UK depositors to claim up to €100,000 from the scheme.
Here are a few more examples of banks which fall under other protection schemes:
Agribank – protection scheme: Malta
Fidor Bank – protection scheme: Germany
Handelsbanken and Ikano Bank – protection scheme: Sweden
Triodos – protection scheme: The Netherlands
What is the “Temporary High Balance Protection?”
(Image: Bloomberg via Getty Images)
If you find yourself with an inflated bank balance because of a house sale, a divorce settlement – or an inheritance, say – you can rest easy.
Springall said: “Since July 2015, up to £1 million can be placed with one provider and still be protected by the FSCS for six months under what is known as ‘Temporary High Balance Protection’.”
The idea is to give you time to work out what you plan to do with a lump sum.
But it’s important to note down in your diary when that six-month period is due to end so you remember to move your money again at that time, to ensure it is all still protected.