Welcome to our September edition of ‘Insight’ by Insignis. Each month, we discuss a topic of interest within the UK financial sector. This month we are discussing what FSCS protection means for UK savers.
During the 2008 financial crisis, we saw banks collapse, with some bailed out by the taxpayer or Angel investors. In response, the government enforced several reforms to better protect the financial system. One of these reforms was to increase the protection offered by the Financial Services Compensation Scheme (FSCS). Broadly speaking, savings in a bank are now protected by the FSCS up to £85,000.
Today, savers are doing everything within their power to ensure their money is safe should the worst ever happen again. Whilst this article by no means suggests that we consider there to be any risk of history repeating itself, it is always worth highlighting what is available for savers.
Protection for your savings in the UK is provided by the FSCS. This applies to any bank that is licensed by the Prudential Regulatory Authority (PRA) to operate in the UK. We mention this as not all banks operating in the UK are licensed by the PRA. Some are UK branches of overseas banks, using what is known as a ‘Passport Scheme’, meaning depositors would be reliant on their home protection schemes should they fail. This is operated under the Financial Conduct Authority (FCA) Temporary Permissions Scheme, which is scheduled to finish at the end of 2023. There is also the chance to place deposits with institutions in the Channel Islands, where protection may be offered by their local compensation schemes, without diluting the protection offered by the FSCS for the mainland branches of the same banks. Protection from the FSCS – for PRA licenced Banks – is currently for the first £85,000 a saver has, in each financial institution. This level of protection can be complex at times, as many institutions in the UK operate under a single banking licence. However, this is not the case for any bank on the Insignis panel, as all of our banks benefit from their own separate banking licence.
Cash savings held at a bank are protected whether they be within a Pension (SIPP or SSAS), Current or Savings Accounts. Large businesses also receive protection, as do Charities and Trusts. Whilst cash within a SIPP is considered as part of your personal cash, and therefore part of the £85,000 total, cash held within a business or a SSAS would be viewed separately. This also applies for any monies you may be a signatory for, as an Attorney, on a Power of Attorney account, or Charitable funds you may be Trustee for.
The levels of protection we have mentioned above are per depositor. Therefore, for a joint account, protection is afforded for up to £170,000 per institution and in some cases higher. In the event a depositor experiences what is defined as a ‘Life Event’, protection is offered at £1mn per depositor, per institution, for up to six months. A Life Event is considered to be the sale of a primary residence, inheritance, redundancy and insurance or compensation pay-outs.
In summation, the scheme is there for the benefit of savers and therefore absolutely should be made use of. Why leave money in a single bank, simply because you always have done, and it’s always been safe? A high street bank is not incentivised to reward savers, whereas the challenger banks are, and traditionally offer greater returns with the added comfort of the FSCS behind them.
The Insignis platform can give you access to over 30 banks and building societies offering exclusive, market-leading savings rates. Our platform enables you to reduce risk, increase yield and save time.
If you would like to discuss any aspect of this ‘Insight’ in more detail, then please get in touch with us at firstname.lastname@example.org.