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Important Changes to FSCS Protection on Cash Savings

January 26, 2016

From 1st January: The FSCS reduced the level of savings that it will protect in the event of a bank or building society becoming insolvent, by £10,000.  This comes as a result of a European Union directive set in 2010 which states that the investor limit for cash deposits should be 100,000 Euros per financial institution and that member states are required to convert this limit to their national currency. 


The €100,000 limit was equivalent to £85,000 at the time but, because the pound has risen against the Euro, it has fallen to £75,000.  


Although the new limit still protects the vast majority of people and businesses, the changes mean   that those with savings over £75,000 are best advised to improve their levels of protection by splitting their savings between different banks and building societies.  To remain 100% protected, they are also advised to ensure that their future contributions do not push their savings beyond the new £75,000 threshold. 


It is important to note that some banks, for example HSBC and First Direct, share the same licence – and that the FSCS’s £75,000 compensation limit applies per licence.  Therefore, if you had deposited £40,000 with HSBC and £40,000 with First Direct, you would only be compensated for £75,000 of the total £80,000 you had placed with them if the banks became insolvent.  It follows that you would need to have moved a minimum of £5,000 to a different bank not covered under the same licence to have been fully protected.


The protection limit is reviewed every five years and the new limit of £75,000 is unlikely to change before then unless there are unforeseen events such as significant currency fluctuations.


In the case of temporary high balances, such as when an individual sells their home, the FSCS will still protect balances up to £1m, in most cases for up to six months.


If customers have missed the January 1st deadline, they still have the option to transfer part of their saving to ensure they are within the new £75,000 limit and are fully protected.  It is important for savers to take heed of these limits as protection really is essential, this is borne out by the fact that some £26bn has been paid out in compensation to over 4.5 million consumers across the full range of financial services in the last 15 years, the vast majority of which was due to the financial crisis in autumn 2008 which precipitated an unprecedented number of claims on the Financial Services Compensation Scheme.

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