How safe are your cash deposits?

Are you one of those people that has safely squirreled away all your hard earned savings across a series of deposit accounts? Carefully balancing the rate of return against the FSCS Depositor Compensation Limits, at £85,000 for an individual account or £170,000 for a joint account? For those of you that have, it’s back to the drawing board…


Whilst the Depositors Compensation scheme is funded by the UK Financial Services Compensation Scheme (FSCS), the level of protection is set by the EU. The Europe-wide protection limit is set at €100,000 and EU rule state that the limit for non-Eurozone countries must be reviewed every 5 years.


In recent years the pound has strengthened against the euro, rising from roughly £86,000 in late 2010 to roughly £72,000 at present. In line with this, the FSCS compensation limit was reviewed to £75,000 per person per financial institution and will take effect from 1st January 2016.


The Chancellor is coming under increasing pressure to press the EU to allow the UK to set its own protection limit, but at present this is falling on deaf ears, with the new £75,000 limit reflecting the longer-term trend in the pound/euro exchange rate over recent years, rather than day to day volatility. Indeed the limit will not be reviewed again until 2020, unless of course there are unforeseen levels of currency fluctuation, in which case the UK has powers to review the limit earlier.


So what should you do now? There is no easy answer to this. You may decide to play it by ear, reducing exposure to a particular bank as and when monies mature or when you look to open new accounts. Alternatively, you may look to immediately reduce your balances immediately, to ensure that deposits remain under the new £75,000 limit. Those with fixed term deposits however may face more difficulties, as they are tied into accounts for the period originally agreed at outset. To deal with this, The Bank of England has launched a consultation into the possibility of allowing those with fixed-term products to move up to £10,000 without incurring penalties. The outcome of this consultation is expected shortly.


For more information on the topic, please contact Lucinda Moylan on 01772 821021.