Savers’ compensation limit increases

From the 1st January the Financial Services Compensation Scheme is increasing the savings protection from £50,000 to £85,000. Clare Francis speaks to the chief executive of the FSCS, Mark Neale, to ask him about the changes...

Clare Francis: Prior to the run on Northern Rock few people worried about whether or not their cash savings were safe. After all, how could a bank or building society go bust in this day and age?

However, the Northern Rock crisis, followed by the collapse of Lehman Brothers and the Icelandic banks along with the bailouts of other UK banks and building societies proved that no institution bank was too big to fail.

As a result consumer awareness of the Financial Services Compensation Scheme has increased hugely over the last few years.

In a recent poll on, 93% of people said they knew that the current level of protection offered by the FSCS was £50,000 per individual. However, only 41% said that they were aware that it was increasing.

From January 1 2011 the level of protection UK savers benefit from will is being brought in to line with the rest of Europe. Mark Neale, who is chief executive of the FSCS, explains the changes.

Mark Neale: The new limit will be 100,000 Euros and that will be true across the whole European Union.

Q2: Why is the limit going up, why is it changing?

Mark Neals: The limit is going up in order to harmonise protection across the European Union and £85,000 or a 100,000 Euros is the level that the European government chose.

Q3: Because it is linked to the Euro, obviously we are not part of the Euro, does that mean the £85,000 protection could fluctuate with exchange rates?

MN: No it won’t fluctuate from day to day; we are going to fix the £85,000 limit for 5 years.

Q4: Can you just explain a bit – if a bank was to go bust, how does the FSCS work? How does it pay out?

MN: If a bank goes bust what would happen is, we would receive from the bank what is called a single view of each customer overall savings with that bank and we would then be able to use that to pay out in 7 days the consumers deposits with the bank.

Q5: Does that happen automatically or does the consumer have to put in a claim?

MN: That will happen automatically.

Q6: And how is the FSCS funded?

MN: The FSCS is funded through a levy on the Financial Services sector. So, if a bank or building society goes bust then we raise a levy on the banks and building societies to pay the costs of compensation.

For most people the new higher protection of £85,000 will be more than adequate, but if you have more than that in cash savings it’s worth spreading your money around.
However, you do need to be careful because the £85,000 protection limit applies per institution and not per account or brand. Some brands such as Halifax and Birmingham Midshires share the same banking license which means that even if you have an account with each, you’d only the £85,000 would be protected.

CF: We’ve got an article on the site to help with this, its called ‘Who owns who’ and its gives a rundown of which providers share the same license, so this should help insure that you don’t get caught out by this, and spread your money round to make sure that every penny is safe.

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