Savings safety net: Five things you need to know about the reduction
The amount protected under the Financial Services Compensation Scheme is dropping from £85,000 to £75,000
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Your support makes all the difference.Is it getting smaller?
The amount of your savings protected under the Financial Services Compensation Scheme is dropping in January from £85,000 to £75,000.
Is it another dreadful Tory cutback?
Surprisingly, no. This ridiculous reduction has in effect been foisted on us by the European Union, which sets the deposit protection limit at €100,000 or the sterling equivalent. When it was set in 2010, the sterling equivalent was £85,000 – but it is reviewed every five years and the pound's relative recent strength means €100,000 now equals just £75,000.
Isn't this a bit nonsensical?
Yes it is. But British financial institutions have been forced to stick to the EU regulations, which means reducing the protection offered to UK savers, even though the move penalises those with decent nest-eggs.
What can we do about it?
If you have more than £75,000 with one bank or building society then it's wise to spread it around other regulated institutions to ensure all your nest-egg is protected. The good news is you still have time to act and can move any balances exceeding the limit without penalty, after moves by the City watchdog.
What do I need to do and by when?
The current Financial Services Compensation Scheme limit expires on 31 December 2015. That's also when the transition period to a new limit ends and is therefore your deadline for action if you want to avoid penalty charges and ensure continuity of protection. Shop around for alternative banks or building societies and contact your existing savings institution to transfer whatever you need.
Mark Neale, chief executive of the Financial Services Compensation Scheme, said: "The £85,000 limit ends on 31 December 2015. People have time to adjust their balances if they have more than the new limit in their accounts. The good news is that the new limit will protect more than 95 per cent of people."
In fact, around 93 per cent of consumers have £50,000 or less in savings.
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