Financial Services Compensation Service savings protection cap reduced: what is a safe amount of savings?

From the 1 January the protection on offer to your savings will fall.

If you have a large amount of savings you may need to reshuffle where you keep it in the next couple of weeks. From 1 January the amount of money protected by the Financial Services Compensation Scheme (FSCS) per bank is falling from £85,000 to £75,000.

The FSCS protects your deposits in the case that a bank collapses. The change means that if a bank was to go bust and you held more than £75,000 with them you wouldn’t be guaranteed to get all of your money back.

It is the first time the level of protection has fallen since the financial crisis. 

The FSCS has defended the decision to drop the maximum amount of money protected, saying that a £75,000 cap will protect the vast majority as most people have no more than £50,000 in savings.

“The good news is that the new limit will protect more than 95% of people and the FSCS will continue to be there for them if the worst happens,” says Mark Neale, chief executive of the FSCS.

What you need to do

If you have more than £75,000 deposited with one UK bank, or multiple banks that share the same banking licence, then you need to move some of your cash if you want it to remain completely protected.

When you are choosing where to move your excess money to, make sure you don’t move it to a bank that shares the same banking licence as your original savings account. If you had £65,000 deposited with Halifax and another £20,000 in a Bank of Scotland account, you would only be covered for the first £75,000 as they share a banking licence. You can check which banks share a licence in our article on Which banks are connected.

Watch out for ISA rules

If you have more than £75,000 sitting in an ISA be careful before you shift it. You are only allowed to open one cash ISA a year so you may have to wait until the new tax year if you have already opened one this year.

Alternatively, if you have several ISAs you could spread the money between them using ISA transfers without falling foul of any rules.

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The rules for European banks

The compensation limit may differ if you hold a savings account with a bank that has a European banking licence. Some European banks are allowed to operate in the UK under their home nation’s banking regulations. This is known as passporting.

The important difference for savers is passporting banks are covered by the European compensation scheme which is capped at €100,000. As this limit is in euros a fluctuating exchange rate could affect how much of your cash is protected.

These are the banks currently operating in the UK under the passporting scheme:

* The amount is converted from euros into Swedish kroner at the exchange rate applicable at the time at which entitlement to compensation arises.

It is worth noting that if you hold money with one of these banks and they were to fail you would have to claim compensation from the bank’s country of origin, possibly in that country’s native language.

“With an increasing number of European banks now offering competitive rates, customers need to be aware that not all savings accounts offered in the UK are covered by the UK compensation scheme,” says Rachel Thrussell, savings insight manager at Moneyfacts.co.uk.

“Savers can be reassured that, under European Law, savings with European banks are covered by the compensation scheme of the banks’ home country, although they should bear in mind that in the event of a crisis, they could be faced with language and exchange rate issues.”

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