The Financial Services Compensation Scheme that protects savers should a UK bank go bust has been well publicised, but what happens if you have savings with an overseas bank? Here are the answers you need.
What is the Financial Services Compensation Scheme?
The Financial Services Compsation Scheme (FSCS) is the guarantee scheme that covers deposits with UK banks and building societies (among other things) regulated by the FSA.
It guarantees that savers will be compensated up to a total of £85,000 (or £170,000 for joint accounts) if the UK bank or building society they save with goes under.
Some UK banks share this FSCS protection limit so you need to be careful where you keep your money.
Read our guide: Which Banks Count as One Under the FSCS? and use our FSCS Compensation Limits Search to make sure your savings in UK banks are fully protected.
I have savings in an offshore account, are they covered?
Offshore accounts, those held with banks based outside of the UK, aren't generally covered by the FSCS.
For example, savings held with banks based in the Channel Islands and Isle of Man aren't protected, neither are those held in countries outside of the European economic area.
However, they may be covered by a scheme run by the country your account is held in so you should contact your provider to check.
I have savings with a foreign bank based in the UK, are they safe?
The short answer is ‘yes, up to a point’, as long as the UK-based part of the bank is fully regulated by the FSA. Providing this is the case your savings will be protected by the FSCS up to the £85,000 maximum.
However, non-UK banks that aren't fully FSA regulated can operate in the UK. In this case exactly how much off your money is protected, by whom and how long it would take to get compensation if the bank went bust depends on who you are saving with.
Largely this comes down to whether your savings are with a bank within the European Economic Area, or further afield.
I have savings with a European bank, how am I protected?
If you are savings with a bank within the European Economic Area (EEA), then your savings may not be directly covered by the Financial Services Compensation Scheme (FSCS), but by a passport scheme instead.
This would mean that you'd have to claim money back via the relevant passport scheme instead of the FSCS if the bank you were savings with collapsed.
Under EU law, every EEA country must have its own compensation scheme in place, and guarantee to cover at least €100,000 of every saver’s money.
However, getting your money back in the event that a bank fails depends entirely on whether the government of the country in question can afford to uphold the guarantee and payout. In these economically volatile times this is important food for thought!
You can find out whether your bank is covered by the FSCS by checking the most up to date list on the FSA website.
'Banks Incorporated in the United Kingdom' are fully protected by the FSCS scheme, while 'Banks Incorporated outside the EEA suthorised to accept deposits through a branch in the UK' are covered by a compensation scheme run in the country they are based.
If you are not happy that your money is properly protected, consider moving some or all of it to a bank that does offer enough protection.
I have savings with a foreign bank that is outside of the EEA, how am I protected?
Perhaps surprisingly, the rules here are far simpler than those covering EEA banks.
Any bank from outside the EEA must establish a UK subsidiary, regulated by the FSA, before it can offer financial services to UK customers.
This means that any savings you have with them will fall under the FSCS and be covered up to a maximum of £85,000 (or £170,000 for joint accounts).
If you have savings with a bank from outside the EEA, or are thinking of opening an account, check whether they are regulated by the FSA, and therefore covered by the FSCS.
Some savings institutions offer savings accounts in the UK without the backing of any compensation scheme. You should be especially wary of these as you could lose your savings if they collapsed.
Read our guide: Should I ever save with a provider that isn't FSA regulated? to find out more.
Do I really need to worry about compensation schemes?
In these uncertain economic times, it is very easy to blow the risks out of all proportion, but that does not mean they should be ignored – whether your savings are in the UK, in the EEA or beyond.
It always pays to know your rights, and to make sure your money is fully protected just in case
