The Facts About The Savings Guarantee
The Fool still receives lots of comments and queries about the compensation they'll receive if they have savings or other products with a bank that fails. We clear up the myths.
On October 3rd, the Financial Services Authority announced that the maximum compensation offered by the FSCS will rise from £35,000 to £50,000 from October 7th. In every other respect, this article remains accurate. Just substitute £50,000 for £35,000.
You will surely by now have heard about the Financial Services Compensation Scheme (FSCS). When a bank fails, this protects up to £35,000 of your savings. However, we get a lot of questions about the detail of the scheme. Here are the answers:
Does the FSCS cover all £35k of my savings?
Yes. Previously, the FSCS covered just a percentage of the first £35,000 you had in an account with a failed bank, so that you'd get back £31,700 of your £35,000. This has caused some confusion. However, the good news is that every penny of your first £35,000 is now covered by the scheme.
Does the scheme cover savings interest I've earned?
Yes. Not only are your savings deposits protected, but any interest you've earned right up to the point the bank was liquidated is protected too.
Do I get double the protection if I have two accounts with the same bank?
No. You only get £35k protection in total from the same bank.
Am I covered twice if I have two accounts within the same banking group?
It depends. Some banks are connected; for example, HSBC owns First Direct. If you have savings in both these banks you're protected on up to £35,000 of the total. That's because these banks share the same banking licence.
However, Royal Bank of Scotland owns NatWest, but these banks have separate licences. Therefore you could have £35,000 in both banks (£70,000 in total) and the whole lot is protected.
(Note that if you had savings in Bradford & Bingley these will now be moved to Abbey. Donna Werbner has written today about what this means for you if you have savings in either or both banks.)
Read more about Which Banks Are Connected.
My bank's foreign. Do I get the same protection?
Yes. If the bank trades here, it must have a banking licence, which means your savings are still protected by the scheme. However, sometimes your savings are covered in part by a foreign scheme as well. This means that you may be expected to try to claim with the foreign compensation scheme first. You can then recover whatever is outstanding of the £35,000 by claiming through the FSCS. Of course, it's possible this might delay your compensation.
What happens to my mortgage?
Your mortgage will end up being passed to someone else to look after. It may be the Government or, much more likely, another bank. You will continue to pay your mortgage under the same terms and conditions as before.
What if I had savings and a mortgage?
If you owed, say, £200,000 to the failed company, perhaps through a mortgage, and you had £150,000 in savings, it's likely the FSCS administrators will deduct your savings from the mortgage so that you now owe it £50,000. You'd get no compensation.
Are my pension schemes, insurance products and investments protected?
Thank you to Jane Baker, who wrote this timely piece that answers these questions: Is Your Pension Safe?
Are my offshore savings protected?
The scheme doesn't cover the Channel Islands or the Isle of Man, nor does it cover deposits outside the European Economic Area.
Do we get twice the protection in our joint savings account?
Yes. Joint account holders will usually both benefit from £35,000 of protection, making a total of £70,000. If the FSCS's administrators see evidence that the pot isn't evenly split, it's possible that one of you will receive less than £35k. This event is unlikely though, and it would only likely happen if the FSCS was handed evidence that one of you had individual savings of less than £35k.
How fast does the FSCS pay out?
There's no fixed time in which the FSCS pays out. However, I've taken a look (admittedly a brief one) at a few cases and found that most people seem to have got their money in a reasonable time in the past. From the date of your claim it may be just a few weeks. But we don't know for sure how long it would take with a bigger bank.
Sometimes, as with Bradford & Bingley, alternative solutions are found immediately, so that you shouldn't have trouble accessing your savings.
If you've ever claimed with the FSCS, please let us know your about your experience by writing a comment below.
How is the FSCS funded?
The banking industry ultimately funds the scheme although, as with Bradford & Bingley, the Government sometimes pays for big claims in the short-term.
Can we trust that the scheme will pay out?
For individual reasons not everyone is happy with the award they receive from the FSCS, but will the scheme fail on a massive scale? It depends how cynical you are and what state you think the country is in. Is it total Armageddon for the United Kingdom as we know it? I think not, but I'm sure some of you will share your alternative views below!