Savings Compensation Limit Down to 75000

Savings Compensation Limit Down to £75000.

The financial services compensation scheme (FSCS) has confirmed that the level of investor protection for deposits in cash based savings will reduce from £85,000 to £75,000 with effect from 1 January 2016.

The F SCS suggests that this limit is in line with deposit protection schemes across Europe where the level is €100,000. Five years ago the pound had a much weaker exchange rate against the euro and the compensation limit was increased to £85,000. Given the turmoil in Europe the pound has strengthened significantly against the euro and as such the FSCS will reduce the compensation limit to £75,000 to reflect the stronger pound.

This means that savers should have no more than £75,000 in any one banking group i.e. any one banking licence. This means you should be very careful where you deposit your savings as some brands are actually marketed as a banking brand but the underlying banking licence maybe with one of the bigger banking groups, this is known as white labelling.

You should also be careful not to be confused with the fact that the £85,000 and £75,000 limits are not per bank account they are per banking licence. If you have three bank accounts with the same bank you have one compensation limit. As far as joint accounts are concerned, if you have accounts with your partner, you then have two compensation limits i.e. the new limit for joint holders will be £150,000.

The FSCS claims that 95% of all bank account holders will still be protected by the new, reduced deposit protection limit.

Comment

We are staggered at this short-sighted move by the FSCS given that exchange rates vary literally on a daily basis and the amount of work involved across the whole financial services industry in making their clients aware of the reduced limit in terms of letters, emails and reprinting of literature will likely cost more than the additional levy that most financial services firms must pay to the FSCS just for the £10,000 difference in compensation levels.

This move can also do nothing but undermine consumer confidence in a beleaguered deposit savings system given the low interest rates that savers are already suffering and yet more work will now be involved for many, both bankers and consumers, in moving money between banks to ensure that you are within the new deposit protection fund limits.

In addition, the British government has already committed to not letting any UK registered bank fail and we see absolutely no point in altering the compensation limit. What a waste of money.