Protection does exist if banks go bust,
but it doesn’t apply to e-money, says Paul Lewis
No uk bank or building society has gone bust since Northern Rock in 2007/08. But a number of credit unions have: the latest was 6 Towns Credit Union last September.
When a regulated bank, building society or credit union does go bust, our savings are protected up to a maximum of £85,000 – double that for a joint account. Customers would be refunded by the Financial Services Compensation Scheme (FSCS) within a week, using money paid in levies by all banks.
But what if you need to put more than £85,000 in the bank? A reader, Marion, asked me that because she is selling her home, and will have more than £500,000 in the bank for a short period before buying her new home for cash. She need not worry. If you have what is called a temporary high balance of up to £1 million then it will be protected in certain circumstances – these include money from selling a property and other situations such as an insurance settlement or a large payment from a will.
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As its name suggests, the protection does not last for ever. The money is safe for up to six months and will be refunded in full by the FSCS if the firm where it is lodged goes bust in that period. To find out more, search fscs.org.uk for “temporary high balances”.
If you need protection for a large sum for longer, all money in National Savings and Investments is safe. Individuals can put up to £1 million into its Direct Saver account and earn 3.65 per cent, with interest and capital guaranteed by the Treasury. Money can be taken out with no notice or penalty. The protection of the FSCS does not apply to money held in what are called electronic money institutions (EMI) such as Monese or Revolut. They are not regulated as banks in the UK, though confusingly some offer what they call “current accounts”. Be very cautious about leaving significant amounts of money in them. Of course, there is no suggestion that those firms or any other EMIs are likely to get into financial difficulties. But if they did, your money would not be protected by the FSCS.