Why is the limit changing?
A European directive (the recast Deposit Guarantee Schemes Directive) sets a €100,000 deposit protection limit for depositor guarantee schemes across the EEA, including the UK. The existing limit was set in 2010 because that was equivalent to €100,000 at the time. However, it is now necessary for those Member States that convert the limit into their national currency to review the existing coverage level, using exchange rates prevailing on 3 July. The PRA has therefore reviewed the existing limit and reduced it.
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How is the deposit protection limit being maintained at £85,000 and who is impacted?
HM Treasury brought in legislation to maintain the maximum level of depositor protection available at £85,000 from now until 31 December 2015. This transitional arrangement applies to depositors who were eligible for that level of compensation before 3 July 2015 and who will continue to be eligible for compensation after 3 July 2015.
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Why is there a transition period to the new deposit protection limit?
The transition period gives people time to consider moving their money if they have more than the new limit in their accounts with a bank, building society or credit union.
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What happens if I have more than the new deposit protection limit with one deposit taker?
You will continue to be protected up to £85,000 until 31 December 2015. So you have time to adjust your balances to stay within the new limit. If you have more than the new limit from 1 January 2016, some of your money may be at risk if your bank, building society or credit union fails.
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Who does the new deposit protection limit apply to?
The new limit protects the vast majority of people (from January 2016) and businesses. This includes small and large businesses. The new limit will mean that more than 95% of retail depositors will be fully protected.
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Which limit applies to large companies and small local authorities? We understand they are protected from July.
Large companies and small local authorities will come under FSCS deposit protection from 3 July. They will be eligible for compensation up to the new limit of £85,000 from 30 January 2017.
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Why didn’t the PRA make an earlier announcement?
The recast DGSD specifically requires a review on 3 July 2015. It was not possible to undertake a review before this date or to announce any measures until the review has taken place and any appropriate measures were agreed.
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How do you decide the new deposit protection limit?
The recast directive sets a €100,000 deposit protection limit across the EEA and requires those member states that convert the deposit protection limit into their national currency to set the limit using the exchange rate prevailing on 3 July 2015. The PRA set the new deposit protection limit according to this requirement.
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When will the limit be reviewed again?
The directive requires the PRA to review the limit every five years. The limit of £75,000 is unlikely to change before then, unless there are unforeseen events such as significant currency fluctuations. The PRA is required to review the FSCS limit every 5 years, and will manage any future changes in a way that seeks to minimise disruption for depositors.
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Why are you consulting on a change to the rules on depositors with aggregate balance over £75,000?
The PRA is consulting to ensure that depositors can adjust the total amount of eligible deposits they hold with any one firm to take account of the new limit on 1 January 2016, without incurring penalties, charges or loss of interest when doing so.
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What does a ‘charge, penalty or loss of interest’ include?
The PRA considers that a ‘charge, penalty, or loss of interest’ in relation to withdrawal of funds from an account could include, but is not necessarily limited to: a fixed fee for early withdrawal, product provisions preventing a withdrawal, a percentage charge for early withdrawal, administration fees and loss of accrued interest or ongoing interest on remaining funds.
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If I have deposits of £85k or more across a fixed term deposit account and an instant access account, would I be required to drain my current account or can I break my fixed term deposit?
The PRA is consulting on rules that will require firms to allow depositors to withdraw funds from the account or accounts of their choice, including fixed-term accounts, even in circumstances where the depositor has an instant access account that could also be reduced. However, this rule will allow a depositor to make only one withdrawal without charge.
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Are any other FSCS limits changing?
Yes the FSCS limits for claims under long term insurance contracts and certain general insurance contracts increase to 100% (from 90%) from 3 July.
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Does the change in the deposit protection limit mean that lots of people will not have as much protection?
The change will not affect the overwhelming majority of people. The new deposit protection limit will continue to protect more than 95% of all people completely. It does mean that a small percentage of people will face some risk if they do not adjust their balances to keep within the new deposit protection limit by 1 January 2016.
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Do people have to apply for compensation if a bank fails?
The FSCS process is generally automatic for balances up to the deposit protection limit. The FSCS will use the bank’s records to send you the balance in your account with interest. You won’t need to lift a finger in the vast majority of cases. An exception to this will be people with temporary high balances. FSCS will pay people up to the limit and invite claims, with supporting evidence to claim for temporary high balances. You can find more information on FSCS’s website.
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What happens if a bank, building society or credit union fails during the transition period?
The current £85,000 deposit protection limit will apply to individuals and small businesses until 31 December 2015. The FSCS will automatically send payments to depositors of a firm that fails during this time. The PRA has requirements in place to make sure that if a firm fails, the FSCS has the information it needs to repay the majority of depositors within a target of seven days.
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Did this review happen because of Euro reducing in value?
No. The limit review is required under the recast directive. The deposit protection limit was reviewed and reset on 3 July 2015. The change in the deposit protection limit is necessary because of a strong sterling exchange rate against the Euro.
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Does this new deposit protection limit include temporary high balances if I sell my home?
From July, FSCS protects certain temporary high balances up to £1m for up to six months (or unlimited in certain cases). More information about the kinds of things that qualify for this protection can be found on FSCS’s website at www.fscs.org.uk
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Are there any other changes that result from the DGSD?
The directive also provides for deposit protection to extend to temporary high balances such as the money from a house sale. In addition, it also provides deposit protection for small local authorities and large companies.
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What happens if I miss the deadline for the new deposit protection limit and have money over it?
Your money will still be in your account. However, the amount above the deposit protection limit may be at risk if your bank, building society or credit union then fails. You will still have the option of moving your money at any point after 1 January in order to ensure that all your money is protected.
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