Financial Services Compensation Scheme - An update
It is generally well known that deposits held with banks and building societies are protected by the Financial Services Compensation Scheme (FSCS). FSCS is the compensation scheme for customers of UK authorised financial services firms. Compensation is awarded to customers if a firm has stopped trading or does not have enough assets to pay claims made against it – known as being ‘in default’.
The current limit for deposits with banks and building societies is £75,000, with this limit being based on which institution holds the ‘banking licence’. Where individuals have short-term cash, the decision has either been to arrange multiple accounts up to the £75,000 limit with different institutions, or place all of the money with one institution and accept the risk of losing money in the event of a default. This has been alleviated by a fairly recent introduction known as the “temporary high balance limit”.
The types of temporary high balances accepted by the FSCS include the following:
Real estate transactions (property purchase, sale proceeds, equity release) relating to a depositor's main or only residence
Benefits payable under an insurance policy
Personal injury compensation (unlimited amount)
Disability or incapacity (state benefits)
Claim for compensation for wrongful conviction
Claim for compensation for unfair dismissal
Redundancy (voluntary or compulsory)
Marriage or civil partnership
Divorce or dissolution of their civil partnership
Benefits payable on retirement
Benefits payable on death
A claim for compensation in respect of a person’s death
Proceeds of a deceased’s estate held by their Personal Representative
Deposits over £75,000 are protected for up to six months from when the amount was first credited or from the moment a qualifying deposit became legally transferrable. Temporary means that the deposit must have been credited to the account (or become legally transferable if that is later) no more than six months before the firm goes into default. For most categories the limit is up to £1 million per depositor per life event, although the FSCS provides unlimited cover for personal injury claims.
This is a welcome introduction for anyone who has received, or is about to receive, a large temporary cash balance. It eases the problem of where to place the money, and gives individuals more time to decide where to place their money in the future. More information is available on the FSCS website: www.fscs.org.uk.