• Olsen Breet
  • April 20, 2020

You have worked hard for your money, and therefore you should know whether your money is safe wherever you decide to put it in. There was a time when a collapse of a bank or a financial institution would be missing in newspaper headlines, but it has recently grabbed the attention of the media. Of course, rising cases in the failure of financial institutions have made savers anxious about their money.

Savings play a crucial role to meet planned as well as unexpected expenditures. If you have enough savings, you can meet any of your expenses without relying on long term loans in Uk. You put your back into building savings so that you can live a debt-free life. Another reason for putting aside a significant amount of money is you can live your retirement life comfortably.

Savings are undoubtedly essential, but at the same time, it is vital to ensure that they are safe. There is always a fear among savers what would happen if financially crisis spread across the economy and banks or financial institutions go under.

Well, you do not need to worry as long as there is a financial service compensation scheme (FSCS).

How does this scheme protect your money?

As per the FSCS, the first £85,000 of your savings or £170,000 in case of a joint account is protected if your bank or financial institution goes broke. Note that this limit applies per bank not per account.

For instance, if you have a fixed deposit of £40,000 and £60,000 in an easy-access account with the same bank, you will lose £15,000 in the event of insolvency of your bank. It is because the bank is obliged to reimburse only £85,000 to an account holder.

It is good to have a substantial amount of savings, but you should not hold more than £85,000 with one bank.

However, spreading your savings across different banks does not mean that it is not subject to risk. Some banks operate as subsidiaries. They may have different names but may be operating under the same licence. Functioning under the same licence means not all of them will be registered with the FCA separately and hence you will not get more than £85,000 and double in case of the joint account if the bank goes bust.

So before you open different saving accounts with different banks, it is paramount to know that they have their licence so that you can get as much protection as possible.

The FSCS does not restrict the protection up to £85,000 if you hold your money with National Savings and Investments (NS&I) as it provides the full protection. It means if you have £200,000 invested there, the entire money is protected.

However, it does not mean that you will invest your whole of the money with NS&I because they do not offer competitive returns.

Not all banks in the UK are UK-regulated

Just because the bank operates in the UK, it does not mean that it is registered with the FCA. FSCS policy is applicable to account holders who hold their savings with the bank that not only operates in the UK but are regulated in the UK.

If you hold your money with the bank that is overseas, your savings should be protected by the compensation scheme in the country to which that institution belongs. Before you open a savings account, it is crucial to inquire about it. You can find this information by visiting the FCA website.

However, if your savings are with a financial institution operating from outside Europe, it must be registered with the FCA to trade in the UK. Therefore it would protect the FSCS. All European banks offer €100,000 as compensation.

If you are bothered about the protection of your savings in case the financial institution goes under, FSCS can help you. However, this scheme will let you get the compensation of only £85,000 or double in case of joint account regardless of total invested money with the same bank account or with different banks operating under the same licence.

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