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24 April 2018

FSCS: What you need to know

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Understanding FSCS limits

The 2008 financial crisis made many of us wonder if the money we have in banks really is secure. You may well remember the queues outside branches of now-defunct Northern Rock as worried savers scurried to remove their funds, or the very public taxpayer bailout of Lloyds and RBS.

While the crash saw many lose out, reforms were made to strengthen the financial services sector and improve consumer confidence. As well as the separation of banks’ retail operations from their investment activities and requirements on lenders to ring-fence more capital, there were also changes made to the FSCS, a compensation scheme set up by the government to protect savers should things go wrong.

Here’s all you need to know about it.

What's the FSCS?

The Financial Services Compensation Scheme (FSCS) is a compensation fund set up as a ‘last resort’ to protect consumers when financial services firms go bust. It means the money you hold in savings accounts, cash ISAs and some other products is protected up to £85,000, guaranteed.

Didn’t the limit used to be £75,000?

Yes, but it was upped to £85,000 in January 2017 by the Bank of England in response to a fall in the value of the pound after the Brexit referendum.

What does the FSCS cover?
The scheme protects deposits up to £85,000 held with UK-regulated:
  • Banks
  • Building societies
  • Credit unions
What products are covered by the scheme?
  • Current accounts
  • Savings accounts
  • Cash ISAs 
  • Help to Buy ISAs
  • Cash Lifetime ISAs

Investment Lifetime ISAs are also covered by the FSCS, but only up to £50,000.

‘Life events’

It’s possible to temporarily hold up to £1 million with one bank or building society and be fully protected by the FSCS. The scheme offers short-term protection after ‘life events’ – for example, money from the sale of your home or coming into an inheritance. Here you can hold as much as £1 million – but the cover only lasts for six months.

Is my money in Masthaven protected?

It certainly is. Your money with us is fully protected up to £85,000.

A bit about licences

Remember that FSCS protection applies to each banking licence. Most banks have their own licence but some – like HSBC and First Direct – share one. So if you had multiple accounts across these two banks, you wouldn’t get £85,000 for every account. Protection would be limited to £85,000 overall.

What about NS&I?

National Savings & Investments (NS&I) is the UK’s government-owned bank. Money saved in NS&I accounts is backed by the Treasury, so is 100% secure. However, it is not protected by the FSCS.

Joint accounts

The £85,000 limit applies to individuals, not accounts – so for a joint account held by two savers, the maximum amount that could be claimed would be £170,000.

Investments

Money in investment products – like stocks and shares and unit trusts – is protected by the FSCS, but only up to a point. Protection (up to £50,000) only applies if the investment firm goes under, you lose money after being given bad advice or your investments were negligently managed. You are not protected if the companies you invest in go bust.

Other FSCS protections

Home finance
You are protected up to £50,000 if you lose money through dealings with home finance firms such as mortgage brokers.

Pensions and annuities
100% of your pension pot or 100% of any investment life savings you hold is protected. And if an annuity firm fails, you are protected for 100% of any loss.

Insurance
Compensation for compulsory insurance products – like third-party car insurance – is 100% protected. For non-compulsory policies – like home and travel insurance – you are covered for 90%.

Products not covered by the FSCS
FSCS protection is pretty exhaustive; however, some products are not covered by it:

  • Peer-to-peer lending 
  • Christmas savings clubs
You can find the FSCS’s eligibility rules here.

 

Got a question about your savings with us? Drop us a line on 0330 363 6666 or email us – [email protected]