Since the banking crisis, the EU compensation scheme means that any savings you have in a bank in the EU up to €100,000 are protected. If a bank fails, your savings are refunded. The UK’s equivalent has been £85,000, but if you have savings in a UK bank you should note that from 1st January this deposit guarantee has fallen to £75,000 per institution.
The guarantee is per individual, so when a couple holds a joint account it will be protected up to €200,000/£150,000. However, it is also worth noting that an institution is not the same as a bank – the Halifax and Bank of Scotland are one institution, for example.
The UK’s Financial Services Compensation Scheme is based on the EU compensation scheme. Regulators have a duty to review the amount every five years to make sure the protection is similar to the rest of the EU.
In July 2015 the Bank of England’s Prudential Regulation Authority announced that it will reduce its guarantee to £75,000 to be in line with the current exchange rate – the Euro had fallen against the pound, impacting the deposit guarantee. The £85,000 limit was maintained until 31st December 2015.
Spain has the Fondo de Garantía de Depósitos and the limit here remains €100,000 as the Euro amount has not changed.
In July 2015, a new rule was introduced in the UK to protect savings of up to £1 million for a period of up to six months to cover ‘life events’. These are situations that could lead to you having a temporarily high balance, such as selling your home, inheritances, compensation payments etc. The rule allows you time to make other arrangements for your funds.
If you have more than the guaranteed limit (£75,000 in the UK, €100,000 in Spain) in a single institution, any excess will not be protected. You may wish to consider spreading your savings between institutions (the balance in any one should be lower than £75,000/€100,000 to cover interest).
Another way to decrease risk is to diversify across different investment assets, which can also increase the potential for improved returns.
You can also move capital into alternate investment arrangements that provide a higher level of protection. Luxembourg stands out among EU states with its strong culture of investor protection and a regime that provides maximum security to investors without limit.
The Isle of Man, Jersey and Guernsey are not in the EU, so neither the EU scheme nor the UK Financial Services Compensation Scheme covers banks there, even if they are divisions of UK institutions. If a bank failed, you would need to rely on the local guarantee scheme, where the compensation limit is £50,000.
As always, your savings and investment decisions should be based on your personal circumstances. Speak to an experienced wealth manager to get tailored advice on asset protection and allocation.
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This article was written on the 18th of January, 2016.