Savings compensation scheme

How safe is your money?

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) from 7 October 2008. 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. 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.

If a bank or building society falls into difficulty, the FSCS will swing into action. It will get 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.

UK savers with Ireland’s six biggest banks, including those with Post Office savings accounts, do not have to worry about the protection limits that apply to banks and building societies in this country. They will have
100 per cent of their deposits protected under the limited term guarantee announced by the Irish government.

If your mortgage and savings are 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.

When it comes to insurance, the FSCS will cover life insurance policies such as pensions, annuities and endowments, as well as motor, home and employers’ liability insurance. For these claims you will again have to fill in an application form from the FSCS (not from your insurer) in order for it to consider your claim.

If you are making a claim against an insurance company that has gone bust, the FSCS could compensate you for the premiums you have already paid (if the insurer is unable to do so) and will try and help you transfer policies or pay you compensation.

Compensation is unlimited under the scheme, but you will not get all your money back unless it is a claim for a compulsory insurance. The scheme covers 100 per cent of the first £2,000 you have lost, plus 90 per cent of the remainder of the claim.

If you are making a claim against an investment company that has gone under, you will have to supply the FSCS with specific details about your investment, such as its type, how much you invested and when. If your business with the company was only ever before August 1988, then the FSCS will not be able to help you.

The FSCS will usually ask you to send any documents relating to your investments which the company may have sent you. The more information you provide, the smoother the claiming process may be.