Savers have been warned that the level of deposits protected in case of a bank, building society or credit union failure is to be cut by £10,000 next year.
The Prudential Regulation Authority (PRA) announced on 3 July that for most depositors covered by the Financial Services Compensation Scheme (FSCS), the level of protection provided would fall from £85,000 to £75,000 – or £150,000 for joint accounts – from 1 January 2016. The PRA is required to recalculate the limit every five years and set it at a sterling amount equivalent to €100,000.
The FSCS said the new limit would protect more than 95 per cent of all savers, adding: “There’s no immediate change for consumers. That means people with more than the new limit have six months to spread their money around to keep within it.”
The limit for FSCS protection applies per institution, not per account, so anyone with substantial savings should keep funds in different banks or building societies.
Pending the result of a short consultation ending on 24 July, it is planned that depositors who are contractually tied into products with balances above £75,000 will be able to withdraw funds between the old and new limits without penalty from 1 August 2015 until 31 December 2015 if they would be affected by a decrease in deposit protection as a result of the change.
Meanwhile, also from 3 July, depositors with temporary high balances will be covered up to £1 million for six months from the date on which the money is transferred into their account, or the date on which they become entitled to the amount, whichever is later.
The move is to ensure that individuals are protected when they deposit funds over the FSCS limit as a result of certain events, including following a house sale or when funds are received following a divorce or inheritance, until they have had sufficient time to spread the money between institutions.
Another change means that large companies and small local authorities – such as parish councils – will come under FSCS deposit protection up to £75,000 from 3 July.