The FSCS can pay you compensation if a bank or building society cannot pay you back any money you have invested with them.
All current or savings accounts, Cash ISAs in banks, credit unions and building societies that are UK regulated will be covered by the Financial Services Compensation Scheme (FSCS). However, for this to apply your bank or building society must be authorised by the Prudential Regulation Authority.
If a firm fails after the 1st January 2017 the FSCS will automatically compensate you for money held with a UK authorised bank, credit union or building society to the following amount:
For each bank, building society or credit union each eligible person can claim compensation of up to £85,000 or up to £170,000 for joint accounts.
Check the banks you invest with are NOT part of the same banking group
It is worth remembering if you have several accounts with banks from the same banking group who share a banking licence they will be treated as one bank. You must remember that the amount of compensation that you will be entitled to will be the total amount held across the various bank accounts not the amount held in each separate bank account. For example, Halifax and Bank of Scotland's accounts are only covered up to £85,000 combined.
James Murray, Accountant and Practice Manager, Visionary Accountants, St Albans, Hertfordshire said:
‘We recommend that our clients review the financial services register to check that the banks they invest with do not share a banking licence. There have been many mergers within the banking industry and many companies still keep their own branding so unless you check it is sometimes not that obvious.’
FSCS pay compensation within seven days
The FSCS aim to pay compensation within seven days of a bank or building society failing, however in more complex cases the FSCS will pay compensation in fifteen working day. In either circumstance you would not need to do anything as the FSCS should automatically compensate you.
Temporary high account balances are protected
From July 2015 the FSCS has protected temporary high balances in a bank account of up to £1 million for a six month period if your savings provider goes into administration. According to the FSCS ‘The protection begins from the date the temporary high balance is credited to a depositor's account, or to a client's account on a person's behalf.’ The FSCS lists certain life events that may have caused the temporary high balance, for example property purchases, sale proceeds, benefits payable under an insurance policy. The full list can be checked on the FSCS website
James Murray, Accountant and Practice Manager, Visionary Accountants, St Albans continued:
‘The collapse of the Icelandic banks, Bradford & Bingley and Northern Rock is over ten years ago. However, when clients are tax planning we always recommend they review their finances and check the size of any deposits they hold with banks and building societies. If interest is being added to an account it is easy for the balance to go over £85,000 so it wouldn’t be fully covered if the worst was to happen.’