July

WHY DGSD MATTERS TO YOU, ME AND EVERYONE

You probably have no idea what the acronym DGSD stands for.  And in a sense it doesn’t matter, but its consequences do. They touch everyone with a bank, building society or credit union account.

The Deposit Guarantee Scheme Directive or DGSD, which came into force on 3 July, makes important changes to FSCS’ protection.

This European Union legislation underpins protection for savings in banks, building societies and credit unions across the EU.  It ensures that all EU consumers have equal safeguards.  It ensures a level playing field for firms.

Under the directive some things stay the same.  The headline deposit protection limit remains at €100, 000.

When first implemented in the UK in 2011 that had the effect of improving up the protection limit in the UK from £50,000 to £85,000, reflecting the Sterling Euro exchange rate.

The strength of Sterling means that the limit now re-sets to £75,000, but the Government has put an Order before Parliament to continue the existing £85,000 new protection limit until 31 December 2015 for individuals and small businesses. 

That gives the small minority of people with savings in a single bank, building society or credit union of more than £75,000 six months to decide whether to adjust their balances downward to reflect the new limit.

Meanwhile FSCS will be publicising the change in our communications over the intervening months.  So will the industry itself in the information it publishes about FSCS protection.

And, by the way, the other thing that doesn’t change is that FSCS will pay-out the great majority of savers in seven days in the unlikely event of a failure. 

In other respects DGSG changes, and improves, FSCS protection.

We shall now protect what are known as temporary high balances up to £1m (and without limit in certain cases).

These are deposits which flow from major life events like the sale of a house, an inheritance or an insurance pay-out.  FSCS will protect these for six months from the time of the deposit.

That is an important extension of protection which recognises that people need time to decide how to deal with exceptional balances of this kind. It is good news for people.

And FSCS protection is also now extended  to deposits made by almost all firms – the only exceptions are regulated financial services businesses.

So the DGSD matters. 

It will affect all savers and nearly all businesses.  It maintains the principle of FSCS protection for all savers in UK regulated banks, building societies and credit unions at level covering more than 95% of all deposits. And people have time to adjust their balances if they choose thanks to the six month transition period.

It extends that protection to temporary high balances and nearly all businesses.