Today's £85,000 guarantee is a comfort. Savers like it. Savers have got used to it. Many of us have organised our savings around it. So why is it changing?
A bit of background. During the banking crisis, a new EU directive said that all member countries should have a bank deposit guarantee scheme. To protect customers' money up to a limit of 100,000€ in the event of a bank failure. The UK's limit was set to the equivalent in pounds of 100,000€. At the time this was £85,000.
However, the limit for the UK scheme, the Financial Service Compensation Scheme, is recalculated every five years. According to the EU directive. And the five years is now. So what's the new limit?
With the Pound now stronger against the Euro, the new limit will be significantly lower. From January 1, 2016 it will be £75,000. That's £10,000 less protection for your savings per bank, or building society, license. Twenty thousand pounds less if you have a joint account. You may need to move some of your savings to guarantee their safety. What do we mean by banking license? A brief explanation…
Many banks are owned by larger banking groups. And the individual banks within those groups either have their own banking license or they share a banking license with other banks in the group. If your savings are in two banks that share a license, your maximum level of protection is £85,000 (£75,000 from January 1, 2016). If your savings are in two banks, each with their own license, your protection is £170,000 (£150,000 from January 1, 2016).
In either scenario, you could lose any savings you have above the guarantee limit. If one of the banks fails. To protect all your savings against bank failure, you may want to review how much you have on deposit in each account. It's a good idea to deposit a little bit less than the limit. To safeguard interest you receive. The EU directive does not cover Jersey, Guernsey, Isle of Man, and Gibraltar. See the end of this page for details. One other thing.
With interest rates on savings accounts so low, now may be a good time to consider other options for your money. Investing just a small proportion of your capital can potentially earn you higher returns. And help your money to keep pace with inflation.
Before you invest however, it’s important to assess whether investing is right for you and your circumstances. A professional financial adviser with a solid track record in investments can help you with this decision.
Jersey, Guernsey, Isle of Man, and Gibraltar
- The UK bank deposit protection scheme and EU directive do not cover these areas. There are local guarantee schemes:
- Jersey - the Depositors Protection Scheme protects up to £50,000 per person per Jersey Banking Group
- Guernsey - the Guernsey Banking Deposit Compensation Scheme protects up to £50,000 per individual per licensed institution
- Isle of Man - the Depositors Compensation Scheme compensates up to £50,000 of an person's net deposits
- Gibraltar - the Gibraltar Deposit Guarantee Scheme protects 100% of the total of all personal deposits up to a maximum of 100,000€