Safety net should guide your decisions on where and when you deposit savings - Gareth Shaw

Q I’m acting as a personal representative for the estate of someone who has died. The estate includes a large amount in cash savings and I’m looking to move this money to get a better return. Am I right in thinking that the Financial Services Compensation Scheme temporary high-balance protection has been extended? If I move the money into another deposit account, would this be affected?

The financial services compensation scheme protects up to £85,000 savings per individual.

A The Financial Services Compensation Scheme is a vital protection for savers should the worst happen and their savings provider go bust. The safety net provided by the scheme was thrown into stark relief during the financial crisis of 2008, when something once thought largely theoretical - a bank going bust – became a terrifying reality.

It’s worth familiarising yourself with the rules of the scheme, as it should guide your decisions about where and when you deposit your savings, particularly if you have a large amount. The compensation scheme protects up to £85,000 of savings per individual, per ‘authorised’ financial institution. This means that one of two regulatory bodies – the Financial Conduct Authority or the Prudential Regulation Authority – have authorised the firm to operate in the UK.

An important caveat about the scheme is that it only applies to funds saved within each financial institution with a banking 'authorisation' - not each bank account, or even each bank. So, if you’ve saved more than £85,000 with two banks that are owned by the same institution with just one authorisation, you're only covered for £85,000 in total.

For example, Halifax and Bank of Scotland are two different banking brands that share one authorisation. So if you deposited savings with both of those banks, you’d only be covered for a total of £85,000. However, if you were to save with Lloyds Bank (which is part of Lloyds Banking Group, along with Halifax and Bank of Scotland), you’d get two lots of protection, totalling £170,000. Joint accounts also get double the protection, totalling £170,000.

Which? has a tool that allows you to check which companies share an authorisation, so that you can have the confidence when choosing your savings provider. Use it at which.co.uk/fscs.

Onto your query. There are circumstances in which you can be covered for more than £85,000 under measures that protect ‘temporary high balances’. This means you’ll be covered up to £1m at times when you have received the proceeds of a house sale, inheritance or redundancy. This extra cover is only available for a limited period, usually six months. However, this has been extended as a result of the coronavirus pandemic.

From 6 August 2020, the time period for holding a temporary high balance was extended to 12 months, applying to both new and existing high balances. In practice, that means money deposited in February last year, which would have had additional protection for six months until August 2020, now has cover until February 2021.

The extension expires on 1 February 2021. If you make a deposit after this date, you will only get six months’ worth of protection.

If you decide to transfer your funds to a new provider, they will still be covered by the temporary high balance support – again, so long as it is regulated and authorised. However, the protection starts from when you first received the funds, not when you deposited them into the new account.

You can only claim the FSCS compensation in certain circumstances, and certain criteria must be met. The financial services firm you hold savings with must have failed and be unable to return your money itself so it is 'in default', you must have actually lost money and you're claiming for personal money you've lost, not money from a business or a charity.

Gareth Shaw is Head of Money at Which?