Financial Services Compensation Scheme (FSCS) provides savings protection for UK savers. As the events of 2008 proved, large financial institutions can get into difficulties and very occasionally do fail. Notably examples being: Northern Rock, which was taken over by the government and HBOS, which was taken over by Lloyds TSB, whom themselves, shortly after, had to be bailed out by the government.
The FSCS has been in existence since 2001, with the aim of protecting clients of financial institutions which have failed. The FSCS is independent from both the government and the financial services industry.
How much of your money is protected?
For each UK regulated financial institution that you hold cash with, the first £ 85,000.00 is safe and will be compensated by the FSCS in the event of that institution failing.
Where couples hold a joint account, they each receive the £ 85,000.00 protection, hence a joint account could be compensated for up to £ 170,000.00.
Note, if you hold more that one account with a financial institution, your protection does not cover each account, but instead the first £ 85,000.00 of the total money held by that institution, e.g., if you hold two accounts with the same bank, the £ 85,000.00 protection does not apply to each account, but the sum total of the balance held in both accounts.
What financial institutions are covered by the FSCS?
Covered under this scheme are banks, building societies and credit unions that are authorised by the FCA, Financial Conduct Authority or PRA, Prudential Regulations Authority. To make sure your accounts are covered, check that the organisation you hold funds with has an FCA registration number. This is known as an “FRN” or authorisation number and can usually be found in the legal information section of a company’s website.
Click here to check the FCA’s financial services register, which will confirm if an organisation is, or has been registered with the FCA or PRA. You can search this register by name or FRN number.
What accounts are covered by the FSCS?
Savings accounts, current accounts and cash held within ISA products, e.g., cash ISAs, LISA’s, help to buy ISA’s are all covered by the scheme, where the financial institution they are held with are authorised by the FCA or PRA.
Temporary high balances
The FSCS provides protection in circumstances where you a large sum of money with one of the above organisations, for what the FSCS term a “Life event”. This covers up £ 1,000,000.00 for up to six months.
The six-month protection starts on the day those funds are credited to your account.
Examples of life events covered are inheritance, proceeds from selling your home, compensation payments, redundancy payments etc.
In the event you seek compensation for a temporary high balance, you will likely be asked to provide evidence supporting the life event that generated those funds, e.g., copy of a will etc.
How long do you wait to get your money back?
In the event of the financial institution holding your money fails, the FSCS will attempt to fully compensate you within seven days. For more complex claims it may take up to fifteen days.
For temporary high balances, as mentioned above, it may take up to three months to be compensated.
Eligibility to claim FSCS compensation
To be eligible for compensation you must meet the following criteria (this information is taken directly from FSCS’s website):
- The financial services firm you did business with has failed and is unable to return your money itself (the company is ‘in default’).
- The FCA or PRA authorised the firm at the time you did business with it.
- You have suffered actual financial loss.
- You’re a private individual (although some businesses and charities may be eligible, depending on the type of claim).
Companies part of the same group
Beware that though you may have accounts with different banks or building societies they may be part of the same group and registered under the same FCA or PRA number, in which case your £ 85,000.00 protection is on the total of the funds held in those accounts, and not the individual accounts.
This can difficult to ascertain and I’d recommend reviewing the company’s website for details of how the FSCS scheme is applied to their organisation. For example, the money you have hold with Halifax, Bank of Scotland, Birmingham Midshires, bank of Scotland private banking, Bank of Wales and St. James’s place bank only receives £ 85,000.00 in total and not for each account, as they are part of the same group.
This is not always the case with large financial groups, for example RBS and Natwest, despite being part of the RBS group, have separate banking licenses and hence separate FSCS protection for money held with each entity. Again, check the company’s website for details.
Overseas banks operating in the UK
Where you hold an account with an overseas bank which is operating in the UK, you should check their website to establish what protection they have in place for your money. Some overseas owned organisations will be covered by FSCS and others will be opted out by using what is known as the Passport Scheme. This means that savings protection will be covered by the compensation scheme operated in the home country of that organisation.
Examples are Santander, which despite being a Spanish bank is UK regulated and hence savings protection is covered by the FSCS scheme. In contrast Ikano Bank is a Swedish bank operating in the UK, which uses the passport scheme and provides savings protection to its UK customers via the Swedish deposit insurance scheme. In this case the protection is the same £ 85,000.00 per person and £ 170.000.00 for joint accounts.
Note that all EEA banks are required to have a compensation scheme equivalent to EUR 100,000.00.
The passport scheme is only an option for banks from the EEA. Non-EEA banks operating in the UK will need to be registered with the FCA and cannot opt out of the FSCS compensation scheme.
Protecting your savings over £ 85,000.00
The obvious solution here is to split your savings between different financial institutions, which operate separate FSCS compensation schemes (beware companies that are part of the same group).