Savings safety net rises after value of pound falters
SAVERS’ cash is now protected by an extra £10,000 each after the savings safety net limit went back up to £85,000.
The deposit protection limit under the Financial Services Compensation Scheme (FSCS) – which pays savers out if their bank goes bust – was previously cut from £85,000 to £75,000 on January 1 2016.
This was due to a requirement under the European deposit guarantee schemes directive, which means the protection limit should be the equivalent of 100,000 euro. At that time, sterling had been making some particularly strong gains.
The decision to cut the limit by £10,000 was previously described by commentators as “bonkers” and “absurd”.
In November 2016, the Bank of England’s Prudential Regulation Authority (PRA) announced a consultation on plans to restore the limit back up to £85,000, following falls in the pound, and the change was later confirmed to take effect on January 30
The FSCS will protect deposits up to £85,000 in banks, building socie- ties and credit unions. Joint accounts will also benefit from the increase, with a new limit of £170,000.
A survey carried out in January for the FSCS found only one in seven people (14 per cent) were aware their cash was getting greater protection.
The research, carried out among more than 2,000 people, also found two-thirds (66%) of people were in favour of the move – with support in Scotland, the West Midlands and the South East found to be particularly strong.
A quarter (25%) of people also thought the increased limit would encourage them to save more.
Another survey, from peer-to-peer lender RateSetter, found 69 per cent of savers would rather earn an extra percentage point in interest on their cash pots than have an extra £10,000 of FSCS protection.
Mark Neale, chief executive of the FSCS, said: “The limit increase will protect even more of people’s savings.”
The FSCS said the new £85,000 limit protects around 98 per cent of people across the UK. Under the £75,000 limit, around 97 per cent of people were protected.
The compensation limit is applied per banking authorisation – and some banking brands share an authorisation.
This means some savers may want to split their deposits out more widely among different firms, to prevent the total value of deposits they hold with a single firm going over the deposit protection limit.
Savers can check whether their cash is fully protected by going to fscs.org.uk/protected.