Protection changes and stress tests – how safe are your savings?

13th December 2016

You could be in line for an additional £10,000 protection from the Financial Services Compensation Scheme!

The Prudential Regulation Authority (PRA) is currently consulting on a proposal to increase the Financial Services Compensation Scheme (FSCS) by an extra £10,000, putting it back to £85,000, just a year after it was cut by £10,000.

The FSCS is the safety net that savers can rely upon to keep their money safe in the event their bank or building society goes out of business and by keeping within the FSCS limit, which is currently £75,000 per person, per banking licence, your money will be protected.

The limit was cut to the current level on the 1 January 2016, as a result of an EU adjustment (made every five years) to ensure that a consistent level of protection is maintained throughout Europe. The limit is based on the sterling equivalent of €100,000. Whilst ordinarily the limit would not be reviewed until 2020, there is provision within the rules to bring forward a review following unforeseen events, such as currency fluctuations.

Following the UK’s decision to leave the European Union in June this year, the pound has fallen against the euro, a fluctuation in currency that was unforeseen when the limit level was last set and has prompted this consultation by the PRA.

The consultation by the PRA will run until 16 December and, if given the green light, the increase will take effect from 30 January 2017. Savings providers will be given until 30 June 2017 to update systems and literature.

Watch this space and we’ll keep you informed of this potentially good news for savers!

However, it wasn’t all good news on the safety front. The news that RBS failed the Bank of England’s stress test has brought safety of banks sharply back into focus, so protection of your savings remains as important as ever.

The Royal Bank of Scotland (RBS) failed a Bank of England ‘stress test’, an annual health check of the UK banking system, which tests the UK’s seven biggest lenders ability to cope with a number of hypothetical scenarios, including a house price crash and global recession.

RBS has emerged as the worst hit by the scenarios involved in the test and has therefore had to take steps to protect itself against a potential financial crisis. The bank, the majority of which is still owned by taxpayers following its bailout in 2008, has issued a plan to bolster its financial strength by an estimated £2bn.

Barclays and Standard Chartered were also said to have struggled in the test, though neither bank was required to issue a revised capital plan. The other institutions involved – HSBC, Lloyds Banking Group, Santander and Nationwide fared better in the test.

Whilst you could argue that it is unlikely to see a bank or building society go out of business, nevertheless news like this does put protection into the forefront of our minds. There are ways that you can ensure that your hard-earned savings are as secure as possible and the first step is to ensure that you keep within the FSCS limits with each banking licence.

One important point to bear in mind is that the protection is per person, per banking licence and there are a number of providers that share a banking licence. As an example, Bank of Scotland’s banking licence is shared by Halifax, BM Savings and Saga, amongst others, a fact that may not be immediately obvious. To check which providers share a licence and which have their own licence, please refer to our handy guide.

For those with larger sums to invest, who wish to maximise their returns whilst also keeping within FSCS limits, our Concierge Service could be the ideal solution. For more information, call one of our Bath-based savings experts on 0800 321 3581 for a no-obligation initial discussion.

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