Savers with cash in British banks and building societies need to check out a new law that changes the level of financial protection of their money.
The Financial Services Compensation Scheme (FSCS) is tasked with safeguarding cash savings alongside European legislation that allows up to 100,000 euros to be ring fenced.
However, the continuing Eurozone debt crisis and falling value of the euro means that when the limit was set several years ago, 100,000 euros was worth £85,000.
Now, that same 100,000 euros is now worth £75,000, so from the January 1, 2016, the protection level drops to that level.
The government has issued the new law through financial watchdog the Prudential Regulation Authority (PRA), which governs the FSCS.
Cash safeguard
The limit changes at the end of the year to allow banks and building societies to write to customers with details of the new limit and to give savers time to rearrange their finances before the deadline.
The PRA explained that few savers would have to make changes because of the new limit as 95% of bank and building society customers have cash accounts with less than £75,000 on deposit.
However, the intricacies of the rules mean the FSCS protection is only extended to customers with £75,000 on account with providers with a single banking licence.
This means a saver with cash in accounts across several brands owned by the same bank is only protected up to the £75,000 limit in total – not for each account.
This affects savers with money held by banking groups like Lloyds Bank, which owns the Halifax and Bank of Scotland brands and Royal Bank of Scotland, which also owns NatWest.
Offshore accounts
The PRA has to review the deposit protection limit every five years by law, so the limits are likely to change as the Pound and Euro rise and fall against each other.
The European directive also applies to any other financial compensation arrangements in European Union countries, so savers with money overseas also need to check out if new rules may affect their offshore holdings.
The rule mainly applies to savings accounts, but also covers ISAs, investments and other financial products offered by regulated firms.
The Isle of Man, Gibraltar, Jersey and Guernsey also have similar protections in force for savers at different levels, but as these financial centres are outside the EU, savers should contact banks and building societies with offshore branches direct to see if any new protection limits may affect their accounts.
