New rules will make your savings safer

The rules which protect your savings are changing. Find out how...

Since 30 June 2009, the FSCS deposit compensation limit has been the higher of £50,000 or €50,000 per person per firm. In the event of a firm being declared in default, the Euro amount will be calculated according to the currency exchange rate on the day of default.

Worryingly there has been recent speculation in the media that the limit could be cut. In fact, the good news is compensation will actually increase on 31 December 2010 following European legislation. The FSA plan to issue a consultation shortly on increasing the limit to the equivalent of €100,000.

We still get a lot of questions about the detail of the scheme. So before the limit is increased. here are the answers based on the current system:

Does the FSCS cover all £50k of my savings?

Yes. Previously, the FSCS covered just a percentage of the first £35,000 you had in an account with a failed bank, so that you’d get back £31,700 of your £35,000. This has caused some confusion. However, the good news is that every penny of your first £50,000 is covered by the scheme.

Does the scheme cover savings interest I’ve earned?

Yes. Not only are your savings deposits protected, but any interest you’ve earned right up to the point the bank was declared in default is protected too.

Do I get double the protection if I have two accounts with the same bank?

No. You only get up to £50k protection in total from the same bank.

Am I covered twice if I have two accounts within the same banking group?

It depends. Some banks are connected; for example, HSBC owns First Direct. If you have savings in both these banks you’re protected on up to £50,000 of the total. That’s because these banks share the same banking licence.

However, Royal Bank of Scotland owns NatWest, but these banks have separate licences. Therefore you could have £50,000 in each bank (£100,000 in total) and the whole lot is protected.

Read more about Which Banks Are Connected.

My bank’s foreign. Do I get the same protection?

Yes. If the bank trades here, it must have a banking licence, which means your savings are still protected by the scheme. However, sometimes your savings are covered in part by a foreign scheme if you have an account with a UK branch of a bank incorporated in the European Economic Area (EEA) that has ‘topped up’ into the FSCS.

Where the bank's home state scheme provides a lower limit of compensation than FSCS, the bank may choose to join the FSCS by 'topping up' the level of protection offered by the home state scheme. See the list of EEA firms that have topped up on the FSCS website.

This means there would be a two step process as the home state scheme would have lead responsibility for claims. The FSCS is only responsible for paying compensation for the topped up element up to £50,000 on deposits with the UK branch. The FSCS would, wherever possible, try to assist claimants in their dealings with the home state scheme.

What happens to my mortgage?

Your mortgage will end up being passed to someone else to look after. It may be the Government or, much more likely, another bank. You will continue to pay your mortgage under the same terms and conditions as before.

What if I had savings and a mortgage?

If you owed, say, £200,000 to the failed company, perhaps through a mortgage, and you had £150,000 in savings, it’s likely the FSCS will deduct your savings from the mortgage so that you now owe it £50,000. You’d get no compensation. From next year the FSCS is moving to gross payouts for depositors (ie this arrangement will no longer apply, and the FSCS would pay £150,000 in the example used here).

Are my pension schemes, insurance products and investments protected?

Take a look at Is Your Pension Safe? to answer this question.

Are my offshore savings protected?

The scheme doesn’t cover the Channel Islands or the Isle of Man, nor does it cover deposits outside the European Economic Area.

Do we get twice the protection in our joint savings account?

Yes. Joint account holders will usually both benefit from £50,000 of protection, making a total of £100,000. If the FSCS see evidence that the pot isn’t evenly split, it’s possible that one of you will receive less than £50k. This event is unlikely though, and it would only likely happen if the FSCS was handed evidence that one of you had individual savings of less than £35k.

How fast does the FSCS pay out?

Generally the FSCS aims to pay compensation within six months of a firm being declared in default or receipt of an application (whichever is later). For credit union claims, the FSCS aims to pay compensation within eight weeks of a default. However, we’ve taken a look (admittedly a brief one) at a few cases and found that most people seem to have got their money in a reasonable time in the past. From the date of your claim it may be just a few weeks. But we don't know for sure how long it would take with a bigger bank.

Sometimes, alternative solutions are found immediately, so that you shouldn’t have trouble accessing your savings.

If you’ve ever claimed with the FSCS, please let us know about your experience by writing a comment below.

How is the FSCS funded?

The financial services industry ultimately funds the scheme although, the Government sometimes pays for big claims in the short-term.

Can we trust that the scheme will pay out?

For individual reasons not everyone is happy with the award they receive from the FSCS, but will the scheme fail on a massive scale? It depends how cynical you are and what state you think the country is in. Is it total Armageddon for the United Kingdom as we know it? We think not, but I’m sure some of you will share your alternative views below!

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