What is the Financial Services Compensation Scheme (FSCS), which financial institutions are party to it, and do you need to worry about losing your savings?
The idea of a major bank collapsing has gone from being unimaginable to being a reality in a short space of time, so it makes sense to know what protection is in place to keep your savings safe.
Use this guide to find essential information about safe savings and savings protection.
Financial Services Compensation Scheme (FSCS)
There is government protection in place to keep your savings safe. The Financial Services Compensation Scheme (FSCS) is a government savings protection programme which would provide savers with compensation if a bank were to collapse.
In the event of a bank going bust, FSCS protection would refund your savings up to a maximum of £75,000 or £150,000 if it is a joint account. This £75,000 limit includes any interest earned on your savings.
The FSCS covers money in savings accounts, current accounts & ISAs held with banks that are registered with the Financial Services Authority (FSA).
The FSCS does not include investments, so if your investment performed poorly or if you had shares in a company which collapsed you would not be covered, although if the provider of your investment were to fail you would get compensation.
Multiple accounts and joint savings account
The FSCS savings protection limit of £75,000 is for each bank, not each individual account – so if you had two accounts each containing £75,000 with one bank you would only be entitled to a total of £75,000 in compensation.
It is important to remember that if you have more than one account containing £75,000 with two banks in the same banking group you would get total compensation of £75,000, unless each of the banks are individually authorised by the FSA.
Similarly if you had a joint account the limit would still be £75,000, despite the fact that two people’s savings were held there.
For example, although RBS and NatWest are part of the same group, they are authorised separately by the FSA, so if you had £75,000 in an account with NatWest and £75,000 with RBS, you would be entitled to £150,000 compensation in total. However, in the case of HSBC and First Direct you would be entitled to a maximum of £75,000, because they share an FSA registration.
To find out how safe your savings are, check who your bank belongs to and whether or not it has an independent FSA authorisation from its parent company.
What if I have debts as well as savings with a bank that collapses?
If you have debts, like a mortgage, loan or credit card, as well as savings with a bank, they will be treated separately. So you will get your savings back, but you will still owe your debts.
How soon would I be compensated if my bank collapsed?
The FSCS aims to process claims within seven to 20 days of the date when the bank/building society etc collapsed.
What protection is there for savings with foreign banks?
More big name banks than you might think are owned by foreign companies, for example Santander and even Yorkshire Bank. However, this doesn’t mean that your savings aren’t safe. Many foreign-owned banks are registered with the FSA in the UK, meaning your savings will be covered by the FSCS.
For European banks that are not regulated by the FSA, there is also savings protection in place. From 31st December 2010, a €100,000 deposit compensation limit came into force in all European Economic Area (EEA) member states. This means that savings with a bank registered in the EEA offer a minimum of €100,000 compensation.
The FCA has a list which is updated monthly, showing which banks are fully covered by the FSCS which you can find here.
Is there anywhere where my savings are completely safe?
If you have savings of less than £75,000 you can be reassured that your savings are safe.
If you have more than £75,000, or even if you have less and want to keep your savings extra safe, don’t put all your eggs in one basket – spread your money between savings accounts with different banks.
Savings with NS&I are completely covered by the FSCS, because it is owned by the government. If you are looking for 100% savings protection on amounts over £75,000, it could be a good bet, but bear in mind that it may not offer the most competitive rates on the market.