Not so long ago, we used to think that banks were safe and you couldn’t lose you money. The financial crisis of 2008 and experience of capital loss with Icelandic and other offshore banks, brought the issue of protection into sharp focus for many. As a result of this, we have seen much greater adherence to limiting your deposit investments to below the maximum £85,000 compensation available under the Financial Services Compensations Scheme (FSCS).
So if you are one of those cautious savers, please note; savers are getting a new deposit guarantee limit from the New Year.
The current £85,000 level of protection continues until 31 December 2015. From January 1st 2016 the amount of savings protected will be reduced to £75,000. The change has happened due to the need to harmonise protection rates under the European Union Deposit Guarantee Schemes Directive. It fixes a harmonized limit of €100,000 (or the equivalent) across Europe. The new UK limit was set on 3rd July 2015 and reflected the exchange rate between the pound and the euro. Due to the relative strength of the pound the compensation limit has had to be reduced.
There’s no immediate change for consumers but we know that many providers are writing to customers to give them a chance to spread their money around to keep within the new limit. However, whilst this will work for those on instant access and notice accounts – our understanding is that lenders are not obliged to allow withdrawals from fixed rate/fixed terms accounts – so, if you have more than £75,000 in a fixed rate bond, the additional funds will be at risk from January.
There’s some news for some consumers with higher balances. People with some types of temporary high balances will have FSCS protection up to £1m for up to six months. Things like the proceeds from a house sale qualify for the new protection limit.
Please bear in mind that the cover is not as straight forward as £75,000 per account of institution. The cover generally applies to the total that you have with any one institution – but in some instances, different trading names can be covered by just once banking license – meaning that your cover may be less than you think it is, so if investing more than £75,000, always check who is the parent company and what accounts are covered. Knowing if you are covered can therefore be very time consuming. As part of our service development we are looking at new software that helps work through this maze of protection issues and ensure that you savings are fully protected. It’s not fully operation yet – but we’ll keep you posted on this service in due course.
In the meantime, if you want to know more about the FSCS look at the Q&A section on this link http://www.fscs.org.uk/what-we-cover/questions-and-answers/qas-about-limit-changes/
It is important to take professional advice before making any decision relating to your personal finances. Information within this article does not provide individual tailored investment advice and is for guidance only. We cannot assume legal liability for any errors or omissions it might contain. Ethical Futures llp is authorised and regulated by the Financial Conduct Authority.