Is your money protected when we leave the EU?

SAVERS should check which compensation scheme covers their deposit accounts after we end our transitional arrangement with the EU on Thursday night. From the New Year, anyone with cash held in British branches of banks with EU licences will have their savings guaranteed by the UK Government rather than EU member states. But Britons with money in overseas branches of UK banks – often the case because they own property abroad – will lose the British safety net.

The UK Financial Services Compensation Scheme (FSCS) points out that protection ‘should’ be transferred to the European member state, though it adds: ‘This will depend upon rules in each jurisdiction.’

This change comes at a time when tables of ‘best buy’ cash savings accounts, such as the one below, have seen traditional UK banks and building societies edged out by new names offering higher interest rates.

Some are EU banks, where savings are covered by the European

Deposit Guarantee Scheme. This obliges each member state to reimburse customers up to €100,000 – currently about £90,000 – if their bank fails.

This is slightly more than the £85,000 guaranteed by the FSCS if an institution with a British banking licence goes bust.

As interest rates languish at pitifully low levels, this safety net is one of the few incentives for savers to keep cash in deposit accounts, especially as other investments which do not come with such a clear safeguard are battered by the effects of the pandemic.

Foreign banks with a UK banking licence, such as Santander, are already covered by the FSCS. Another chart-topper, France’s RCI Bank – the finance group of carmaker Renault – obtained a UK licence last year.

For those without a UK licence, the FSCS says protection will change to the UK scheme from January 1 if a provider is based in the EU and deposits are held in the UK.

The rules also cover Iceland, Liechtenstein and Norway. However, since the collapse of Icesave and Kaupthing in 2008, which saw a bitter row between the British and Icelandic governments over which should bail out 450,000 savers with deposits in British branches, none of those countries have been prominent in the UK.

In the end, the FSCS bailed them out to the tune of £4 billion.

Tougher rules on bank lending ought to prevent similar collapses today, but establishing where your cash is held and who provides cover is still crucial.

For instance, Ikano, which until a fortnight ago topped the best buy savings tables with its five-year fixed rate account paying 1.26 per cent, says on its website: ‘You’ll continue to be protected by the Swedish Deposit Insurance Scheme until December 31. From January 1, your money will be protected by the UK FSCS.’

Santander says any British customers with savings held in one of its Spanish branches will continue to be covered by EU rules.

Moneycorp Bank, which features in today’s best buy table with its 90-day notice account paying 0.65 per cent, is licensed in Gibraltar, so it says funds will continue to be covered by the Gibraltar Deposit Guarantee Scheme after December 31, up to €100,000.

Anna Bowes, of Savings Champion which compiles the tables, says: ‘If you hold cash in the UK, it will remain protected – but it always helps to be clear about where that protection comes from.’

For more details see: fscs.org.uk/ about-us/brexit.