This Christmas, the FSCS gave to me…

OK, so it wasn’t quite a gift and large Christmas presents don’t qualify, but have you ever thought about what would happen if you sold your house, put all the funds in the bank and then that bank went bust?

 

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The usual compensation limits for bank accounts are only £75,000 per person (effective 1st January 2016), which even for a couple would be unlikely to cover the value of a house.

 

With this kind of thing in mind, the Financial Services Compensation Scheme (FSCS) have brought in a new scheme to cover “temporary high balances” or situations which result in larger than usual sums of money being held in a person’s account, for a short period of time, as a result of “major life events”. A depositor with such a balance may be entitled to receive additional compensation from the FSCS in the event that the worst should happen and the bank with which they have put their money struggles to meet its obligations.

 

There are very specific circumstances in which funds would qualify as “temporary high balances” and these include (but are not limited to):

 

  • The sale of a house
  • Receipt of a pay-out from an insurance company
  • Compensation from a personal injury claim
  • Redundancy pay-outs
  • Gifts received in the event of a marriage
  • Divorce settlements
  • Inheritances
  • Proceeds of a deceased person’s estate when held by their Executors

 

Cover is only available to individuals, not companies, and is limited to £1,000,000 per life event, with unlimited cover for personal injury claims.

 

The additional compensation only covers these balances for up to six months, so at that stage you need to make sure you are making alternative arrangements to ensure the safety and security of these funds.

 

In the event of your bank going bust, this special exemption will not be made automatically and you will need to contact the FSCS for a claim form. You will then have to provide documentary evidence to support your “life event” e.g. a copy of the will, land registry records, court orders or insurance company documentation.

 

This new legislation brings the UK compensation scheme in line with other countries within the EU, so you should also be covered, for example, if you sell a holiday property in another EU country, depositing the proceeds in a bank in that country.

 

So whilst it’s not a gift, it might give you some peace of mind if you are between houses or sitting on a lump sum from a recent inheritance or insurance company pay out. Enjoy the festive season knowing that your lump sums are safely covered…

 

Of course if you need any longer-term advice in respect of your cash holdings, contact me or one of our Financial Planning Consultants.

 
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