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Secure Savings and Compensation: How Do I Keep My Deposits Safe?

Secure Savings and Compensation: How Do I Keep My Deposits Safe?
Date of Publication: Tuesday, 22 January 2013 00:00
Last Updated: Monday, 04 January 2016 14:20

In the UK, almost all savers are protected by the Financial Services Compensation Scheme (FSCS) for deposits in licensed banks and building societies. However, it is not always straightforward. Read on to find out more about keeping your savings safe.

 

Secure Savings Video

 

Why is it necessary to protect my savings?

The collapse of Northern Rock in 2007 and the Icelandic bank Landsbanki in 2008 demonstrates how important it is to ensure the safety of your deposits in the event of a banking failure.

 

How much of my savings are covered by the FSCS?

The FSCS Limit was decreased on the 1st January 2016 to £75,000. £75,000 is now covered per person per institution.

 

Deposits in current accounts, savings accounts, fixed-rate bonds and ISAs are covered by the Financial Services Compensation Scheme up to £75,000 per person per institution.

 

For joint-accounts, both depositors receive the maximum compensation limit, providing a total of £150,000.

 

What is an institution? Does that mean there's a catch?

An institution is best defined by its FSCS registration.

 

Many banks hold independent registrations, each of which entitles customers to a maximum compensation limit of £75,000 for all deposits.

 

However, frequent changes in bank ownership have resulted in a number of banks and building societies becoming grouped together under a shared registration. It's not necessarily fair, but it's important to look out for.

 

Whenever financial institutions are grouped together under a single registration, the £75,000 maximum cover is for deposits across all of these together rather than each one individually.

 

Example:

  • Leeds Building Society holds an individual FSCS registration. Customers are covered for all deposits up to £75,000.
  • Cheshire, Derbyshire, and Dunfermline Building Societies all fall under the registration of the Nationwide Building Society. The £75,000 compensation limit covers deposits across all of these four collectively rather than individually.

 

What constitutes an institution is not always immediately straightforward. The two principal components of Lloyds Banking Group, Lloyds Bank and HBOS, both hold separate registrations which are shared with other bodies.

 

For more information about banks with individual registration and collective registrations, see the tables on our savings account page.

 

Grouped Banks

 

Overseas banks

Some banks operating in the UK are based overseas. While most are covered by the FSCS in the same way as domestic banks, some banks from the European Economic Area (e.g. Handelsbanken) use a “passport” compensation scheme through their home governments.

 

From December 2010, all European countries were required to standardise their compensation limit to €100,000, roughly the equivalent of the UK’s limit of £75,000. However, there is no ultimate guarantee that foreign compensation schemes will pay out, as it is likely that foreign governments will want to prioritise their own people first.

 

To see which overseas banks are protected by the FSCS and which are protected by Passport schemes, see the saving with foreign banks table on our savings accounts page.

 

How do I protect my savings?

For maximum protection, deposit no more than £75,000 in any one FSCS registered institution. Savers may still receive a share of any savings above this limit through the distribution of any insolvent banks’ assets, but it cannot be guaranteed.

 

For savers with large sums to invest, it is advisable to open multiple savings accounts with different institutions and deposit no more than £75,000 in each one. Investing below the maximum £75,000 limit will ensure that interest can be factored into a maximum compensation claim.

 

Alternatively, invest in a government-supported scheme, such as National Savings & Investments (NS&I), which is secured through affiliation with the Treasury.

 

Consider overseas banks with caution.The FSCS has precedence in providing compensation to UK savers; the same cannot always be said of overseas ‘passport’ schemes. The UK Government was forced to rescue over 300,000 UK-based Icesave customers in 2008 for deposits totalling £5 billion after the Icelandic passport scheme proved untenable.

 

Does the FSCS protect businesses?

 

Some small businesses are also covered by the FSCS guarantee. To qualify for the same compensation level as individuals, eligible firms must meet two of the following criteria:

  • Turnover does not exceed £6.5 million.
  • Balance sheet does not exceed £3.26million.
  • Total number of employees does not exceed 50.

 

Additional Notes:

    • The information provided on banking registrations is maintained to the best of our abilities. Which4U does not take responsibility for out-dated information but endeavours to avoid it where possible.
    • See our editorial on the FSCS advertising campaign.
    • Figures provided here are correct to the date of publication or last edit (01 September 2014). The FSCS Limit was decreased on the 1st January 2016 to £75,000.
    • From June 2012, UK-based deposits with the Bank of Cyprus came under the protection of the Financial Services Compensation Scheme (see more).

 

Keith McDonald

Which4U Editor

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Tuesday, 22 January 2013 00:00
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