Compensation Limits to be Cut
July 15th, 2015
The Financial Services Compensation Scheme will cut the cash compensation limit from £85,000 to £75,000 from 1 January 2016.
From 1 January 2016, the Financial Services Compensation Scheme (FSCS) will reduce the compensation limit for savers from £85,000 to £75,000.
Currently, anyone with savings up to £85,000 (or up to £170,000 for joint accounts) in a bank or building society would be covered for this amount if the institution goes bust.
The limit is set by the European Union Deposit Guarantee Schemes Directive that fixes the level of protection across Europe at €100,000 or its equivalent. When the level was agreed in 2010, that figure translated into £85,000. But the FSCS said that due to the value of the euro falling against the pound, the limit is being set based on the exchange rates applying on 3 July.
Mark Neale, chief executive of FSCS, said: “The countdown to a new FSCS savings limit is under way. Until December 31 2015 people are protected up to £85,000. People have six months to get ready for the change, if necessary. What won’t change is the service FSCS provides to the people using banks, building societies and credit unions. We will continue to be there for them.”
He added: “The new £75,000 limit will protect more than 95pc of all consumers.” Ninety-eight per cent of the British population were covered by the £85,000 compensation safety net.
Importantly, advisers should ensure that clients are fully aware of their position in regard to what would or would not be covered. Note that in the situation where a bank shares a banking license with other banks, savings which are split between the various banks which share the same license will only usually be covered if the total amount does not exceed the current limit of £85,000.
It is evident that the benefit of warning clients of these type of change well in advance (6 months in this case) means that they can consider their overall position in terms of whether to potentially move savings between different account providers or consider alternative savings and investment vehicles.