Financial Services Compensation Scheme

Guarantees for savers’ deposits

From 7 October 2008, if you have a savings or current account with a UK-based institution, up to £50,000 of your cash is protected through the Financial Services Compensation Scheme (FSCS).

If the institution collapses, you will be entitled to claim back 100 per cent of your money up to that limit. Savers are covered for that sum in each organisation they bank with, unless any of them share a banking licence. If, for example, you have money with Barclays and HSBC, which don’t share a licence, you will have up to £50,000 protected in each bank.

However, if you have money with HSBC and First Direct, which do share a licence, only the first £50,000 of your total will be protected. The protection is for each account holder, so in a joint account up to £100,000 will be covered.

If you have more than £50,000 in an account, the first £50,000 will be 100 per cent secure and you will be able to reclaim it in the same way as someone who holds less than the new limit. You may be able to recover some of your other money, but only after the bank has been liquidated. The Financial Services Authority (FSA) is looking at how this process can be made easier.

If a bank or building society falls into difficulty, the FSCS will obtain a list of customers from the administrators and if you are on it you will be sent a form to apply for compensation. You must fill this in and send it back to get your claim processed.

In a consultation document published earlier this year the government proposed making it easier for the FSCS to settle claims so that all savers can be compensated within a week. No final decision has been made on these changes.

If you have money deposited in Icesave, the Icelandic internet bank, the Icelandic government has taken over and the Icelandic deposit protection scheme will cover the first €20,887 (£16,264) of savings. If your account has a balance higher than this, the remainder will be covered by the UK’s FSCS up to a maximum of £50,000.
In addition, UK savers with Ireland’s six biggest banks, including those with Post Office savings accounts, will have 100 per cent of their deposits protected under the guarantee announced by the Irish government.

If you have your mortgage and savings with the same bank, your deposits are offset against your outstanding borrowing and you only get back anything that is left after this has been done. So if you hold £30,000 in a savings account and have an outstanding mortgage of £200,000 when your bank fails, instead of getting any money back you would see your mortgage debt reduced to £170,000. The FSA is in the process of consulting on whether your mortgage and savings should be dealt with separately.