Friday 22 January 2016

Finance Fridays – Financial Compensation Scheme

In last week's Finance Fridays we were looking at tax self assessment forms as the deadline looms ever closer. If you need to complete one and haven't submitted it yet do it now!

For this week we're looking at what happens to your money if things go wrong. If your bank, building society, insurance company, credit union, mortgage broker, pension company or investment firm goes bust then the Financial Services Compensation Scheme (FSCS) can cover some of the amount lost. Up to 31st December 2015 the standard amount covered was £85,000 but since 1 January 2016 this has dropped to £75,000.

The £75,000 limit refers to money held within one company. For example you could have three accounts with the Toytown Bank such as a current account, ISA and standard savings account but as an individual the maximum you would be covered for is still £75,000 with this one company. The basic advice is don't put your eggs all in one basket if you have more than £75,000 invested with one company. Before you put any money into a company check with the FSCS that they are registered and have a Firm Reference Number (FRN) or authorisation number. Be aware that some companies may be branded different but share the same parent company and as such the same FRN so the £75,000 limit would still apply across the two individual companies. One example of this is Halifax and the Bank of Scotland.

Now I realise that most people will be thinking that this issue doesn't concern them as they don't have that much money in savings and investments. However, there are times when you may come into money for example when selling a house before buying another one, inheritance, pension lump sum, insurance claim or redundancy payment. In such circumstances the FSCS counts such large sums of money as a 'temporary high balance'. They realise that when you first come into such large sums of money through these circumstances you may need a little time to decide what you will do with it. Therefore they give you a six month window to move the money and in this time the compensation limit is increased to £1 million. If after the six months your money is still in the original account you deposited it in then the £75,000 limit comes into force.

If you think by using well-known high street bank or building society your money should be safe let me just whisper the words Northern Rock. I was also working in pensions during the whole Equitable Life mess back in the early 2000s when some people lost their entire pension funds. Have you ever lost money when a financial institution has gone out of business?

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  1. This has certainly gave me something to think about! Thanks for this post, brilliant information

  2. Lots of great information here Ness. I didn't know about the 'temporary high balance' window of 6 months.

    1. The temporary high balance clause only came into force in July last year. Thank goodness for fairness!

  3. Thankfully (sort of!) I've never had any money to lose, but it must be a nightmare for those that do!

  4. Thanks for writing these great informative posts. They are really useful and something we don't usually think of until it happens to us.

  5. If only I had enough money to worry about spreading it out - one day eh!

  6. Useful advice and something to bear in mind, thank you!

  7. I have claimed back PPI successfully a couple of times but having so many problems with our car finance as no-one is claiming resposibilty

  8. Lots to think about there, great post.


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