In Depth

Why the FSCS will now protect £85,000 of your savings

Compensation limit is rising to take account of the fall in the value of the pound since June

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The Financial Services Compensation Scheme is changing how much of your money it will protect. Here’s everything you need to know.

What is the FSCS?

The Financial Services Compensation Scheme, or FSCS, is a system to protect the money you deposit with UK-registered banks, building societies and credit unions. It is funded by the financial services industry itself through a system of levies.

If your bank, building society or credit union is covered by FSCS, then in the event that it went bust you would get compensation from the FSCS to cover the money you had deposited with that company. All of the covered firms pay annually to insure against this risk.

At present the FSCS covers up to £75,000 deposited with each financial institution. That means, in order to protect your money, you shouldn’t deposit more than £75,000 in one account. 

But, the rules on what counts as an individual financial institution are complicated. Rather than each bank or building society counting as an individual, the FSCS works by banking licence or group. So, if two banks are owned by the same parent company you would only be covered for £75,000 across both banks.

For example, Bank of Scotland owns both Halifax and Birmingham Midshires. That means if you had accounts with Halifax, Bank of Scotland and Birmingham Midshires the FSCS would only cover you for £75,000 across all three. Any extra cash you held with them would potentially be lost if Bank of Scotland went bust.

Numerous banks are owned by other banks so it is well worth checking you aren’t accidently above the FSCS limit because you have multiple bank accounts with the same banking group.

You can check who owns your bank, and the other financial institutions in the same group, by using this tool on the Which website.

Why is the limit changing?

At the end of January the compensation limit is increasing from £75,000 to £85,000. The amount of money protected by the FSCS is linked to a European-wide protection level of €100,000. The increase is due to the falling value of the pound and is intended to bring the UK level of protection back in line with that €100,000 level.

Every country in the EU that has its own currency outside of the Euro has to review its limit every five years, but can change it earlier if events affect the exchange rate substantially. The Brexit vote back in June has seen the value of sterling tumble, resulting in this change to the FSCS limit.

The aim of constantly adjusting the limits across Europe to keep them in line with the magic €100,000 figure, is to avoid a situation where people are moving their money across borders to take advantage of higher protection levels. That occurred during the financial crisis when money flooded into Ireland due to its higher compensation level. 

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