The Financial Services Compensation Scheme (otherwise referred to as the FSCS) is a statutory compensation scheme in the UK which is in place for customers of authorised financial service firms. They are responsible for paying compensation if a firm is unable to pay claims against it (which is usually if it has stopped trading). It covers deposits, mortgages, investments and all types of insurance policies.
The FSCS have recently announced two major changes to the protection that it currently gives to those who hold cash savings in bank accounts or building society accounts that are covered under the scheme.
From 1st January 2016, the amount covered by the FSCS is being lowered from £85,000 to £75,000. This means that if your bank or building society collapses, you’ll only be covered up to £75,000.
What does this mean for those it affects?
People who have more than £75,000 in one institution will be able to request a withdrawal of up to £10,000 without having to pay an exit fee or receive any type of charge. The amount that they will be allowed to take out depends on how much more their savings will be above the new protection limit. Those with deposits of up to £75,000 must take action to make sure that they remain covered fully by the FSCS.
They can send in requests up until the 31st December, but it’s thought that firms are not required to release the cash until after the 1st October.
For those who have a temporary high balance, whether it’s from the sale of a house or lump sum redundancy payment, you might have extra protection at a higher limit for up to six months after the money is put into your account. Therefore those who have a higher balance than they normally would can be assured that they will get a little more protection.
What else should people know?
Anyone with an ISA, SIPP, AMPP or Personal Portfolio account may be affected by the changes.
For those who have deposits that are less than £75,000, you don’t have to worry as you won’t be affected by the limit being lowered. However, clients with more than £50,000 in their cash accounts will be getting notified in writing about the changes.
If you are worried about the changes and would like to speak further about them with an experienced financial advisor, please don’t hesitate to contact us.
As leading independent financial advisors in Lancaster, we can offer you some professional and friendly advice about the changes that are happening. Just give us a call on 01524 416872 and a member of our team will be happy to assist.