Tuesday, 31 January 2017

UK Savings Protection Limit Raised, But How To Utilise It Properly

UK Savings Protection

The UK savings protection limit offered by banks and building societies, has today increased by £10,000, because of a slump in the pound following June's EU referendum.

This means the total compensation payable to savers if their institution collapses is now £85,000. The changes are to keep in line with an EU-wide deposit protection limit of €100,000.

The new maximum compensation sum was lowered to £75,000 in July 2015, following sterling's rise against the euro. However, since Brexit, the pound has fallen more than 10% against the euro.

Banks and building societies now have until 30 June 2017 to amend the conditions and notify customers.

Danny Cox, chartered financial planner at the independent financial advisor Hargreaves Lansdown, said: "Resetting the FSCS limit back to £85,000 sets a more positive tone for savers."

It is estimated the new level will benefit about half a million UK savers and will mean around 98% of customers are protected. At present, just under a million UK savings accounts hold more than £85,000.

Mark Neale, chief executive of the FSCS, said: "The limit increase will protect even more of peoples' savings. The new limit will protect about 98% of people so it is worth people knowing their limits."

Masthaven bank managing director, Jon Hall said: "One in three people are planning to save more money this year, so increasing the FSCS limit to £85,000 will be good news for them and regular savers too, as it means everyone will have peace of mind that their money is protected.

"Our research indicates millions (5.7m) of people intend to switch savings account in 2017, as only 8% are sure they’re on best rate.

“However, if you do have more than £85,000 in savings it’s important that you spread your money out across different financial institutions remembering that some banks share a parent company.”

Under the Financial Services Compensation Scheme (FSCS), up to £85,000 per person, per institution is now protected if a bank, building society or credit union goes bust. The rules will cover anyone with money in a current account, savings account, and cash ISA, to the value of £85,000.

Meanwhile, joint accounts have a protection level of £170,000. The payout itself usually takes around seven days.

The rules cover all UK-regulated accounts. Foreign banks like Spain's Santander are also covered as they're UK-regulated, but some EU-owned banks operate a 'passport scheme' where you receive protection based on their country of origin.

Check your bank’s website to confirm this, and if you’re still not sure, give them a call or check on the FCA's website.

The FSCS also has a protection checker for savers, who can verify if their account is covered before depositing money.

It's important to remember that if a bank fails, you'd get back up to £85,000 per financial institution - not account.

If you do have more than £85,000 in savings it’s important that you spread your money out across different financial institutions remembering that some banks share a parent company.

For example, Lloyds Banking Group, which was formed by the merger of Lloyds TSB and HBOS has two banking licences.

To make matters more complicated, there are a number of brands that operate under the HBOS licence: Halifax, Bank of Scotland, BM Savings, Intelligent Finance, The AA and Saga.

This means that if you have a savings account with Halifax, and another with BM Savings, only £85,000 is protected.

But if you had a Halifax account and an account with Lloyds Bank, you could protect £170,000 of your cash savings because they are registered separately with the FCA.

The only place where your savings are protected above the £85,000 limit is National Savings & Investments (NS&I), because it is backed by the Government. NS&I offers 100% protection of your savings.

Hannah Maundrell, Editor in Chief of Money.co.uk says: "If you’ve got over £85,000 in savings or current accounts check all of your cash is covered by the FSCS just in case. If you do have more than this in one bank account, spread your eggs a little more and enjoy this protection across more than one banking group.

"Nevertheless, if you find yourself with an inflated bank balance because of a house sale or the like you can rest easy; savings of up to £1 million should still be covered for up to six months."

Which banks count as one for FSCS protection?
  • Bank of Cyprus UK
  • Bank of Ireland UK, Post Office
  • Bank of Scotland, Aviva, Halifax, Intelligent Finance, Birmingham Midshires (BM Savings), AA, Saga, Capital Bank, St James's Place Bank
  • Barclays, Standard Life Cash Savings, The Woolwich
  • Citibank
  • Clydesdale Bank, Yorkshire Bank
  • The Co-operative Bank, Smile, Britannia
  • Coventry Building Society, Stroud & Swindon
  • HSBC, First Direct
  • Lloyds Bank, Lloyds Bank Private Banking
  • Nationwide
  • NatWest
  • Royal Bank of Scotland
  • Sainsbury's Bank
  • Santander (previously: Abbey), Cahoot
  • Skipton Building Society, Scarborough Investments Direct
  • Tesco Personal Finance PLC
  • TSB
  • Virgin Money
  • Yorkshire Building Society, Barnsley Building Society, Chelsea Building Society, Norwich & Peterborough Building Society

Only 4% of people in the UK have more than £75,000 in savings, while more than two-thirds of people (67%) have £10,000 or less, according to research by RateSetter.

It's 2,000-strong survey asked whether customers would rather have a more protection for their savings or earn a higher rate of return, the vast majority of savers favoured the latter, with 69% saying they would rather earn 1% more in interest than have an extra £10,000 of FSCS protection.

Commenting on the findings, Rhydian Lewis, CEO and co-founder of peer-to-peer lending platform RateSetter, commented: “While the FSCS tinkers around yet again with the level of protection it provides, it is abundantly clear that what people really want is better returns on their savings.”

"With record low returns on savings that can’t even match inflation, it’s no wonder that more people are deciding to put some of their money to work, by accepting some risk in exchange for a higher rate of return."



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