Are Your Funds Protected? A Simple Guide to Financial Safety in the UK
You’ve worked hard to earn your savings, and the last thing you want to worry about is whether your money is safe in the bank. Well, good news! Most UK banks and financial institutions have protection schemes to ensure your hard-earned money is safe. Let’s dive into the details and demystify the Financial Services Compensation Scheme (FSCS) and other protective measures in place.
What is the Financial Services Compensation Scheme (FSCS)?
Established in 2001, the FSCS is a government-backed scheme designed to protect your money if the unfortunate occurs and your financial institution goes out of business. The scheme not only protects the money you’ve put into your savings account but also any interest you’ve earned on it. Currently, the FSCS covers up to £85,000 per person, per banking license.
Not Just Banks!
The FSCS doesn’t stop at banks. It also protects money in insurance policies, mortgage lenders, and certain investment products.
How the Banking License Matters
Now you might think, “I have accounts in multiple banks, so I must be extra secure!” Well, not so fast. The protection is not for each account but rather is limited by the banking license. So, if you have accounts in multiple banks that share the same banking license, you’ll still be capped at £85,000 of protection.
Example: Banking License Confusion
Take Halifax and Bank of Scotland. They operate under the same banking license, which means you’re covered for up to £85,000 across accounts in both banks. On the other hand, NatWest and Royal Bank of Scotland, despite being owned by the same parent company, have separate licenses, giving you £85,000 of protection in each.
Who and What Are Covered?
The FSCS protection extends to all banks and building societies regulated by the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA). You can easily check whether your bank is covered by using the FSCS’s online eligibility checker.
Since Brexit, funds held in European Economic Area (EEA) branches of UK companies are no longer covered by the FSCS. However, EEA companies licensed to operate in the UK still enjoy FSCS protection.
What’s Not Covered?
While FSCS is quite comprehensive, it does have some limitations. For instance, it doesn’t cover cryptocurrencies, certain e-money companies like PayPal, and unregulated investments.
Special Cases: Savings Platforms
If you use online savings platforms like Raisin UK or Flagstone, you may need to pay extra attention. These platforms are not banks but act more like intermediaries that help you find the best rates across multiple banks. However, as long as your money is held in an account provided by a regulated bank, you’ll still have FSCS protection.