The Financial Services Compensation Scheme for Deposits

A Reduction in the Financial Services Compensation Scheme’s Limit for Deposits. 

The Financial Services Compensation Scheme limit for deposits is to be cut from £85,000 to £75,000 per individual, per bank licence, with effect from the 1st January 2016, as required by the European Deposit Guarantee Schemes Directive.

The FSCS is the UK’s statutory compensation scheme for customers of authorised financial services firms. It can pay compensation if an authorised financial service firm is unable, or likely to be unable, to pay claims against it. FSCS is free to consumers and, since 2001, has helped more than 4.5 million people and paid out more than £26 billion.

Who Does This Reduction Affect?

This reduction in the limit for deposits not only affects our Personal Clients but also our Clients who are Members of Small Self-Administered Schemes.  Just to reiterate, each Member enjoys potential compensation of £85,000 at the moment reducing to £75,000 on 1st Jan 2016 per Bank Licence.  This means that if a Member does not have deposits with the same bank elsewhere, the Member is covered for £85,000 this year, reducing to £75,000 next year. So, if for example, there are two Scheme Members the cover can be up to £170,000, reducing to £150,000 next year.

Joint Accounts in the name, for instance, of husband and wife, again have the limits £170,000/£150,000.

What do we Recommend?

Given that the limit of the compensation scheme is per Bank Licence (and not by account), it is recommended that large amounts of cash be held in a series of bank accounts with different licences to avoid breaching the compensation limit.

Each bank has its own authorisation licence, but those that operate different brands often (but not always) share them. Under these circumstances, you might think that having £75,000 deposited in each of two banks gives you total compensation of £150,000 under the new rules.

That is not the case if the two banks share the same banking licence, because they are part of the same group. For example, sister banks Halifax and Bank of Scotland’s accounts are only covered up to £85,000 combined (£75,000 from 1 January 2016). However, being part of the same group does not always mean the banking licence is shared. RBS and NatWest are also sisters, but their £85k limits (£75,000 from 1 January 2016) are separate.

If you need help, advice and clarification on the FSCS, which banks share the same licence and the potential benefits of becoming a member of a Small Self Administered Scheme, then call us on 0121 690 0390 or contact us. We’ll be delighted to hear from you.

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