The Financial Services Compensation Scheme
Contents
Introduction
What kind of protection do savers have in the event of a UK-regulated bank or building society going bust?
A system has been in place for some time to protect people's money.
Under the Financial Services Compensation Scheme (FSCS), if you have an account with a UK bank, building society or credit union then your deposits are covered up to £50,000.
This only counts for a net deposit, so if you had £50,000 deposited but also had a £20,000 loan with the same bank, then only £30,000 would be compensated.
Banks from outside Europe are required to set up a UK subsidiary if they wish to operate in the UK and those subsidiaries have to be members of the FSCS, so your deposits there would also be covered.
A more complicated situation arises if you have an account with a bank from somewhere in the European Economic Area (EU members plus Iceland, Norway and Liechtenstein) in which case your bank may be covered by their home scheme.
Schemes in the EU have to offer compensation for at least the first 20,000 euros, although they may offer significantly more than that.
In addition, they may agree to a top-up arrangement by which the FSCS would pay the difference between their home scheme's compensation and £50,000.
If you are unsure whether you are covered you should contact your bank and ask them.
Where does the compensation money come from?
Ultimately, the UK's regulated banks cover the cost of the compensation scheme as it is funded by compulsory levies on the financial services industry.
We've got a joint account, so how much is protected for us?
A couple with a joint account is covered per person.
Each person in a couple would have £50,000 covered in the account - so up to £100,000 in total would be protected.
Similarly, if you spread your money across different banks, this would be covered separately. For example, you have £50,000 saved with Barclays and £50,000 with HSBC, all of this would be protected as the rules are for deposits per customer and per bank.
What happens if I have money in different accounts, with the same bank?
This is a little more complicated.
Say you have two accounts with HSBC with £50,000 in each, then only a total of £50,000 will be covered at present.
More significantly, some banks have different divisions but are authorised under one name. So if, for example, you have £50,000 with the Halifax and £50,000 with the Bank of Scotland, then you are only covered for the first £50,000.
Other banking groups, however, have various divisions separately authorised. For example, a customer who has £50,000 with The Royal Bank of Scotland and £50,000 with NatWest will have all of the money protected, even though they are part of the same group.
You can check whether an institution is authorised at a group level or as a separate entity by checking the authorised firms register through the Financial Services Authority's website. If you are still unsure, you can contact the FSA consumer helpline on 0845 606 1234.
I run a small business, what about me?
The deposit protection scheme was set up primarily for private individuals.
But small businesses get similar protection to savers.
A limited company will get protection if it can satisfy at least two of the following three criteria:
- A turnover of not more than £6.5m;
- A balance sheet total of not more than £3.26m;
- A total number of employees of not more than 50.
Partnerships - not the individual partners - can claim up to £50,000.
For a sole trader account, the sole trader can claim up to £50,000 in total, but can only claim for either personal or business accounts with each institution - they cannot claim for both.
What is the situation in Ireland?
The Irish government has decided to fully safeguard all deposits, bonds and debts in six banks and building societies for two years.
It followed an earlier pledge to increase the level of compensation offered by the Irish government from 20,000 euros to 80,000 euros.
The move is aimed at shoring up the country's financial system.
The banks covered are Allied Irish, Bank of Ireland, Anglo Irish Bank, Irish Life and Permanent, Irish Nationwide Building Society and the Educational Building Society.