The amount of savers’ cash that is protected if their bank goes bust has been cut by £10,000.
What’s the latest?
Protection on savings balances - if a provider was to go bust - was cut today by £10,000.
The Bank of England’s Prudential Regulation Authority has slashed the amount of savers’ cash that is guaranteed if their bank or building society goes under, from £85,000 to £75,000.
It is the first decrease to the amount protected by the Financial Services Compensation Scheme (FSCS) since the limit was increased significantly to reassure savers that their money was safe during the financial crisis.
Why is this happening?
The change is being made due to the strength of the pound against the euro.
The UK's FSCS threshold is recalculated every five years to ensure it remains in line with the equivalent European scheme, which protects deposits up to €100,000. Because sterling has risen in value against the euro, the level of protection offered to UK savers has to be reduced.
Who does it affect?
The change is bad news for anyone who has a large sum of money deposited in a savings account. Instead of having peace of mind knowing that their first £85,000 is safe, they now have only £75,000 protected.
The move potentially affects first-time buyers saving to get on to the property ladder. This is particularly the case in London, where a 20% deposit on the average priced home of £531,000 would equate to more than £100,000.
It could also affect people who plan to use the proceeds of a property sale to boost their savings or fund their retirement.
However, people with temporarily high balances, such as those between properties, won't be affected. That’s because a change to the rules made in July 2015 covers up to £1m for six months from the date at which the money is transferred to their account.
Sounds interesting. What’s the background?
"The move potentially affects first-time buyers saving to get on to the property ladder. This is particularly the case in London..."
Savers can protect themselves by splitting their money between different banks and building societies, as the limit applies per banking licence, not per person.
But consumers must choose carefully as some banks share a banking licence because they are part of the same group. For example, Halifax and Bank of Scotland accounts are only covered up to a joint £75,000.
People have a higher level of protection if their money is held in a joint account, as the limit for both savers is combined to protect the first £150,000, although this is down from the previous guarantee of £170,000.
Top 3 Takeaways
- The amount of savers’ money that is protected if their bank goes bust has been cut from £85,000 per person, to £75,000.
- The move is to bring the UK scheme in line with the European one, which protects the first €100,000.
- Savers who have temporarily high balances will have up to £1m of their money protected for six months.
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