Protecting the money we’ve worked hard to save up is a priority for most of us. You may have heard of FSCS protection before but never needed to use it.
I’m going to explain everything you need to know about this extra layer of cover. Read on to find out what FSCS protection is, what the coverage limits are for your savings, and how you can actually make a claim.
What is the FSCS?
The tongue-twisting FSCS stands for Financial Services Compensation Scheme. It’s an independent body created by parliament and paid for by the financial services industry.
Essentially, it’s goal is to help raise public confidence in financial services. The body does this by providing levels of compensation under different circumstances.
Although the FSCS handles claims, it’s actually UK regulators like the FCA that actually set the compensation rules and limits. These can occasionally change, so it’s worth keeping up to date.
What is FSCS protection?
The body’s services are completely free to use and make sure that some of your money can be protected in certain situations.
The protection offered only applies if a regulated company becomes insolvent or defaults. It’s really important to remember that this means only certain companies are covered.
There are quite a few different areas and sub-schemes available within FSCS protection. Each has its own limits and coverage. The main protection offered applies to any money you have saved with a bank, building society or credit union.
Who does it cover?
A company has to be regulated in order to fall under FSCS protection. This is why it’s safer for you to save your money in a bank rather than under your mattress.
There are around 1,500 regulated organisations in the UK, so I won’t list them all here. If you do want to check whether your bank or financial services company is covered, you can find out easily on the Bank of England website.
The main types of accounts with coverage include:
- Savings accounts
- Current accounts
- Cash ISAs
- Cash saved within a SIPP (self-invested personal pension)
How much does it cover?
The total limits covered by FSCS protection for deposits are up to:
- £85,000 for individual accounts
- £170,000 for joint accounts
- £1,000,000 for temporary balances held for up to six months (assessed on a case-by-case basis)
It’s worth noting that these figures are per institution. So you can have separate protection with each different financially regulated institution you hold your money with.
For many, saving up this amount of money might seem like a pipe dream. However, there are some really common circumstances where you might find yourself with large sums in your account:
- Saving up for a house deposit
- Inheriting money from relatives
- Receiving a large bonus or proceeds from a work share scheme
- Re-mortgaging a property in order to carry out an upgrade or renovations
- Receiving part of your pension as a lump sum
So although the total protected amount may sound like a lot right now, there will likely be at least one point in your life when the FSCS limits may apply to you.
How do I make a claim for FSCS protection?
Since 1 January 2017, under most circumstances, if a bank, building society or credit union fails, there’s actually nothing you need to do.
The FSCS will compensate you automatically within seven days of the firm failing. This might stretch to 15 days for more complicated cases.
For other types of protection offered by the FSCS, you can use the body’s website to check whether you’re eligible to make a claim. If you are, you can process the claim directly through the FSCS at no cost to you.
If the amount you have saved is over the current limits, you could open another account elsewhere to spread your risk. It might also be worth speaking to a financial adviser to see what steps you can take to make sure you’re protected.
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