🔔 Between the FSCS and NS&I, your cash is covered!

Extension of the FSCS protection on large balances

The Financial Services Compensation Scheme (FSCS) has temporarily extended its protection for consumers with large cash balances of up to £1m.

From 6th August 2020, The Temporary High Balance (THB) protection will now apply for 12 months from receipt of the money, up from six months - although it will then revert back to six months for cash deposits received from 1 February 2021.

The THB protection was introduced in July 2015 to provide security for savers with larger balances that arise from specified life events such as the sale of your home. It was designed to allow those consumers who received a significant sum of money to place up to £1m with each provider while they decided what to do next.

Without it, they would often have to either accept that the majority of their funds were at risk should their bank fail, or they would need to split the money into £85,000 chunks with myriad providers – perhaps for just a short period of time. For those in the middle of selling and buying their home, the option of taking the risk will often feel like less of a headache than splitting the money between providers.

Up to £1m is covered per banking licence, in addition to the normal limit of £85,000 but only for a temporary period. For more information about any providers that may share a banking licence and therefore potentially reduce the amount you have protected, take a look at our FSCS licence information.

As mentioned, only cash that is received due to certain events is covered, including the sale of your main residence, the receipt of a divorce settlement or redundancy package. And while benefits payable on retirement are covered, unfortunately cash sums that arise from the sale of a business are not.

The FSCS said the move comes in response to the impact of Covid-19 on the residential property and investment markets, with some consumers facing reduced access to banking services.

Caroline Rainbird, chief executive at the FSCS, said: "The coronavirus pandemic has been very worrying for everyone, and people are understandably concerned about the possibility of losing their temporary high balance should their deposit taker fail.

"The temporary extension of FSCS's protection from six to 12 months will do much to reassure them should the worst happen during these uncertain times."

If a bank or building society fails after 6 August 2020, the extension will apply to both new and existing temporary high balances received. For example, funds deposited in February 2020 will now be protected until February 2021 - rather than August 2020, as would have been the case previously.

Do you actually need to take advantage of the THB protection?

Of course, while this is good news, as things stand at the moment there is no need to depend on the FSCS THB extension because National Savings and Investments (NS&I) is paying the best rates on easy access accounts – and all deposits with NS&I are protected by HM Treasury for as long as they are held – not just for a temporary period.

You can deposit up to £1m into the NS&I Income Bonds and Investment Account paying 1.15% monthly gross and 0.80% AER respectively and a further £2m per person can be deposited into the NS&I Direct Saver, which is currently paying 1% AER. Compare these rates to the high street banks’ easy access accounts, which are paying as little as 0.01%, and there is a significant advantage to using NS&I at the current time.

We are currently offering all of those with £100,000 or more in savings, investments and pensions the opportunity of a free cash flow forecasting pension review, worth up to £500, from our sister company, The Private Office. Do you know when you can afford to retire? It could be sooner than you think. Find out more here.