FSCS limits with fixed rate bonds

canelo

With interest rates increasing 2 and 3 year fixed rate bonds are becoming quite attractive. If I opened a bond with £85,000 which is the maximum level of FSCS protection what would be the position if during the fixed period the compensation limit was reduced like it was in the past? You can't reduce your investment accordingly because you don't have access to your money. Are you at risk of losing your savings?

dunstonh

 what would be the position if during the fixed period the compensation limit was reduced like it was in the past? 

FSCS protection only changed as it was an EU requirement to have it set to a figure based on euros.  So, the reason it changed was the exchange rate.    We don't have that issue anymore.

You can't reduce your investment accordingly because you don't have access to your money. Are you at risk of losing your savings?

That is the way the cookie crumbles.  If it goes up, you benefit. If it goes down, you don't.

eskbanker

While it's undoubtedly true that the limit won't be reduced in order to align with the EU, it is still theoretically possible for it to be changed for other reasons - my recollection is that when this happened before, at least some providers of fixed term products offered a one-off opportunity to reduce holdings to the lower limit, but even if my memory is correct, that doesn't necessarily mean that the same would happen again!

refluxer

To avoid any FSCS limit issues, split your money over a number of fixed rate savers with different banks (that aren't linked). You could either take them out now for different durations and/or stagger them throughout the year which could be a wise move in the current climate of rising interest rates.

To give you an idea of how fast rates are rising, the current best 1 year fixed rate @ 2.75% is now higher than the best 2 year fixed rate was 2 months ago. With that in mind, it's possible that the attractive 3 year rate you mentioned may not look quite so good by the end of the year... and possibly sooner than that.

wmb194

canelo said:

With interest rates increasing 2 and 3 year fixed rate bonds are becoming quite attractive. If I opened a bond with £85,000 which is the maximum level of FSCS protection what would be the position if during the fixed period the compensation limit was reduced like it was in the past? You can't reduce your investment accordingly because you don't have access to your money. Are you at risk of losing your savings?

We have a precedent for this, in 2015 when it was reduced from £85k to £75k. Obviously it was later returned to £85k but what happened was that the excess was allowed to be withdrawn.

"...it is planned that depositors who are contractually tied into products with balances above £75,000 will be able to withdraw funds between the old and new limits without penalty from 1 August 2015 until 31 December 2015 if they would be affected by a decrease in deposit protection as a result of the change."

https://www.watsonbuckle.co.uk/deposit-protection-limit-reduced/