FSCS £50,000 maximum payouts

Arbury

MSE’s excellent savings advice does not seem to cover in enough clarity when a bank covered by FSCS £85k will only pay out £50k. It appears to revolve around the type of savings eg if you take out a fixed term bond they will only cover £50k? MSE advice regularly supports best deals on fixed term bonds and implies the cover is £85K per person protection but is that correct? I have had numerous email exchanges with FSCS but their answers are always brief and with no context. Can anyone help clarify?

ColdIron

Simply put:

1. Cash is £85,000, doesn't matter if it's a fixed bond or not
2. Investments are £50,000 but be aware it is quite conditional

https://www.fscs.org.uk/what-we-cover/

However there are many companies out there that purport to offer unrealistically high interest rates (6% - 12%) on what they sometimes misrepresent as 'savings bonds' that are in reality very high risk investments products where the cover is consequently £50,000 (assuming that they are regulated at all). These companies are not banks and do not have a deposit taking licence. You should avoid these at all costs as a retail saver or investor

eskbanker

You're perhaps confused by the ambiguous term 'bond', which is used to cover multiple different types of product.

If you're referring to savings, where fixed-term accounts issued by banks or building societies are sometimes referred to as bonds, then these are capital-protected cash deposits that benefit from the FSCS £85K compensation limit in the event of institution failure.

If you're referring to investments, where bonds are typically issued by governments or corporates, and as such fall within the lower £50K FSCS coverage applicable to investment firms.

However, the figures will be equalised next April when the latter limit is raised to £85K, which will make the point moot, although it's obviously critically important for those buying bonds to understand the difference between bank-issued bonds (savings) and government/corporate bonds (investments).

dunstonh

MSE’s excellent savings advice does not seem to cover in enough clarity when a bank covered by FSCS £85k will only pay out £50k

The FSCS has multiple protections. Deposits, investment and insurance.

Deposits fall under the deposits protection scheme. It doesnt matter if instant access, cash ISA or fixed term deposits.

The £50k protection applies to risk-based investments (excluding many pensions which fall under insurance).

MSE advice regularly supports best deals on fixed term bonds and implies the cover is £85K per person protection but is that correct?

It is important to know what you mean by fixed term bonds. The word "bond" has been hijacked and has been used in marketing incorrectly for so long that its use is now often associated with "wrong" products.

Fixed Term deposits, sometimes referred to as bonds by the banks in their marketing, get £85k FSCS protection as they are deposits.

Fixed interest securities within a packaged investment (such as a unit trust) get £50k FSCS protection.

A single fixed interest security gets no FSCS protection at all unless put in place via a regulated adviser and the advice was found to be wrong.

You have corporate bonds, investment bonds and a range of others.

Plus, you have the dodgy "bonds" that are not retail regulated products but often use words to fool people that dont understand. These are usually loan notes and have no FSCS protection whatsoever. Often they have rates of 8-12%. Some of them claim, incorrectly to have £50k FSCS protection.

It would probably help if you tell us what product/investment you are looking at so we can clarify the position for you. I suspect you are looking at an unregulated loan note with marketing that is trying to fool you into thinking its a fixed term deposit. LC&F for example. Castle Trust being another but plenty of others.

Arbury

Thanks for all these helpful replies. Being a risk averse investor I am talking about fixed term bonds with the likes of Nationwide Sainsbury’s and Aldermore. They are clearly low risk guaranteed return unless the bank’s go out of business which is why the FSCS protection certainty comes in. It is encouraging to hear that from April next year that more investments capped at £50k will be equalised at £85k for people who might have taken on more risky investments and not realised. How I wish the FSCS had been more clear in their meanings behind investments only being £50k.

Alexland

FSCS doesn't cover the 'risky investment' but the service that they used to buy and manage the investment. And even then some investment services are to risky or insufficiency mainstream to get any cover.

dunstonh

It is encouraging to hear that from April next year that more investments capped at £50k will be equalised at £85k for people who might have taken on more risky investments and not realised.

Very few people take on regulated risk-based investments without knowing. Its the unregulated, potentially dodgy stuff where issues and they get no FSCS protection.

How I wish the FSCS had been more clear in their meanings behind investments only being £50k.

Not all investments get 50k FSCS protection. Some get no FSCS protection (shares, investment trusts, ETFs and others). Some get 100% FSCS protection with no upper limit (insured pension funds, life funds and others)

So, its a difficult one to answer without knowing what type of investments you were referring to. I suspect most of us here were expecting you to name a mini bond or loan note as we get people asking about those every week.

eskbanker

Arbury wrote: »

Being a risk averse investor I am talking about fixed term bonds with the likes of Nationwide Sainsbury’s and Aldermore.

....which makes you a saver not an investor, a distinction that may seem pedantic but is actually quite important when deciding what to do with your money, especially with FSCS coverage in mind.

Arbury wrote: »

How I wish the FSCS had been more clear in their meanings behind investments only being £50k.

https://www.fscs.org.uk/what-we-cover/ has a simple layout showing the varying levels of cover that FSCS offers, linked to further pages that explain exactly what each of these mean in more detail.

Arbury

I believe that I am now clear on this and only found myself pondering the £50K threshold having asked the FSCS a different question relating to personal and closed company director investments which i’d now like to describe as savings based on advice here as it is a simple no risk means to have a low return of interest. As a closed company director of a company that has £85k saved in a 1 year saving bond with Aldermore. My question was, could I then take out a £85k personal 2 year Isa savings bond and still be covered by both FSCS £85k thresholds if the bank went bust. I was worried that the difference between being a personal saver and a closed company director saver might be aggregated if with the same bank and only allow a single £85K to be protected.

Arbury

I should have just made clear to this forum that the two saving accounts would both have been with the same bank (Aldermore)

eskbanker

I don't think it's an issue if the two accounts are held by different entities (you personally and the company) but as the Aldermore 2 year ISA pays 1.8% while the equivalent from Shawbrook pays 1.95%, why not just go with the latter yourself and render any FSCS-related concern moot?