ZOPA - account limit and interest

jelajelavic

Hi all - I know the account limit for ZOPA's smart saver is £85k. Does anyone know if that is the limit is only application to the amount deposited or does it also include any interest earned?

For example if you put £84k into a 31 day notice account (2.05%), you'd be over £85k after 7 months but your initial deposit is still below the limit.

Rollinghome

Limit excludes interest.

Wheres_My_Cashback

Rollinghome said:

Limit excludes interest.

Not in all cases.

EG. deposit £50K, receive interest of £100, then you can only deposit a further £34,900 so it includes interest this way....

but not if depositing £85K and then receiving interest on top.

Exodi

Wheres_My_Cashback said:

Rollinghome said:

Limit excludes interest.

Not in all cases.

EG. deposit £50K, receive interest of £100, then you can only deposit a further £34,900 so it includes interest this way....

but not if depositing £85K and then receiving interest on top.

Indeed, account limits exist everywhere and while it initially seems odd, it couldn't work any other way.

Though I think it's interesting they set their limit at £85k, very likely to mirror FSCS protection limits - but in reality if someone was to deposit £85k, they would not be protected on any interest accrued.

If the limit was £80k, it would take a consumer about 3 years to exceed the FSCS protection limit - which seems more sensible.

refluxer

Yes - interest is included in the £85k FSCS limit so, in the case of the Zopa Smart Saver account where interest is paid monthly, any interest that has been paid into the account that takes your total over £85k won't be covered in the event of a compensation claim.

There's some official info here : https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim2085

...which includes the following :

"Even where an element of interest is included in a compensation calculation it may still be that no interest is actually paid. This is because the FSCS may have compensation limits that limit the total amount of compensation payable."

In the scenario you mention, it would therefore make sense to ensure that you don't go over a total of £85k in an account that you can't easily access, such as a boosted (notice) pot. With Zopa, you would simply give sufficient notice once you start to approach that £85k limit (so at least 31 days before the offending interest payment is due), skim off any excess interest into an account you can withdraw from and re-boost the pot. Their 'pot' system makes this a simple process that would take minutes.

In general though, complications can presumably arise where interest is due on an account (that would take it over £85k limit) but which hasn't actually been paid into the account. Eg. a fixed rate account where interest is paid annually. For this reason, it makes sense to ensure that this isn't likely to happen by simply splitting the money between different financial institutions.

MSE themselves recommend that you don't deposit the full £85k with any one financial institution and that you should make an allowance for interest. One added benefit of this is that you also don't (temporarily) lose access to all of your money in the event of a problem with one of them.

"For perfect safety, save no more than £83,000 per institution (the extra £2,000 gives room for interest). Spreading can be worth it even if you've under £85,000; if your bank went bust, the money could be inaccessible for a spell. Using two accounts mitigates the risk."

Rollinghome

Exodi said:

Wheres_My_Cashback said:

Rollinghome said:

Limit excludes interest.

Not in all cases.

EG. deposit £50K, receive interest of £100, then you can only deposit a further £34,900 so it includes interest this way....

but not if depositing £85K and then receiving interest on top.

Indeed, account limits exist everywhere and while it initially seems odd, it couldn't work any other way.

Though I think it's interesting they set their limit at £85k, very likely to mirror FSCS protection limits - but in reality if someone was to deposit £85k, they would not be protected on any interest accrued.

If the limit was £80k, it would take a consumer about 3 years to exceed the FSCS protection limit - which seems more sensible.

When there is instant access, the amount exposed without FSCS protection is in reality going to be just a very small percentage of the £85k, and only for as long as the interest is left in the account.  An estimated sum could also be withdrawn just before the interest is paid,

It would be more of an issue for a 95 day pot, for those who are fastidious about such things, as interest is added directly to the pot and couldn't be removed until the end of a notice period.

For myself, never having needed FSCS compensation, I'm not totally clear on the FSCA treatment of interest in any case.

I recently received a reply from the FSCA to a query saying: "In relation to interest or expected profits, FSCS does not calculate or add interest or equivalents to the compensation payments we make to customers of a failed deposit taker."

HMRC's Savings and Investment Manual seems to read differently, saying: "If the claim is accepted by the FSCS as valid and the bank deposit paid interest then it is common for the FSCS to include in the compensation payment interest on the financial product up until the date that the bank was declared to be in default or if appropriate, up to the date of maturity of a fixed term deposit".

It's not clear to me either what "then it is common" means, or the circumstances, or how it fits with the reply from the FSCS. I also understand that since April 2019, the FSCS applies the Bank of England base-rate to compensation, so not necessarily the rate expected from the bank/BS.

The FSCS clearly says on its website "FSCS protects your deposits".  Most people take that to mean both deposits and interest.  There's a lot more besides, but less on exactly how interest is treated.

If anyone knows of a definitive document that makes it all clear, then I'd be interested. If not, I may contact the FSCS for further clarification.

jelajelavic

refluxer said:

Yes - interest is included in the £85k FSCS limit so, in the case of the Zopa Smart Saver account where interest is paid monthly, any interest that has been paid into the account that takes your total over £85k won't be covered in the event of a compensation claim.

There's some official info here : https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim2085

...which includes the following :

"Even where an element of interest is included in a compensation calculation it may still be that no interest is actually paid. This is because the FSCS may have compensation limits that limit the total amount of compensation payable."

In the scenario you mention, it would therefore make sense to ensure that you don't go over a total of £85k in an account that you can't easily access, such as a boosted (notice) pot. With Zopa, you would simply give sufficient notice once you start to approach that £85k limit (so at least 31 days before the offending interest payment is due), skim off any excess interest into an account you can withdraw from and re-boost the pot. Their 'pot' system makes this a simple process that would take minutes.

In general though, complications can presumably arise where interest is due on an account (that would take it over £85k limit) but which hasn't actually been paid into the account. Eg. a fixed rate account where interest is paid annually. For this reason, it makes sense to ensure that this isn't likely to happen by simply splitting the money between different financial institutions.

MSE themselves recommend that you don't deposit the full £85k with any one financial institution and that you should make an allowance for interest. One added benefit of this is that you also don't (temporarily) lose access to all of your money in the event of a problem with one of them.

"For perfect safety, save no more than £83,000 per institution (the extra £2,000 gives room for interest). Spreading can be worth it even if you've under £85,000; if your bank went bust, the money could be inaccessible for a spell. Using two accounts mitigates the risk."

Thanks for the info but I wasnt referring to the FSCS limit (although I am aware of that and anything above is not protected). I am just referring to ZOPA's account limit, regardless of protection or not

refluxer

jelajelavic said:

Thanks for the info but I wasnt referring to the FSCS limit (although I am aware of that and anything above is not protected). I am just referring to ZOPA's account limit, regardless of protection or not

I'll get me coat

Exodi

jelajelavic said:

refluxer said:

Yes - interest is included in the £85k FSCS limit so, in the case of the Zopa Smart Saver account where interest is paid monthly, any interest that has been paid into the account that takes your total over £85k won't be covered in the event of a compensation claim.

There's some official info here : https://www.gov.uk/hmrc-internal-manuals/savings-and-investment-manual/saim2085

...which includes the following :

"Even where an element of interest is included in a compensation calculation it may still be that no interest is actually paid. This is because the FSCS may have compensation limits that limit the total amount of compensation payable."

In the scenario you mention, it would therefore make sense to ensure that you don't go over a total of £85k in an account that you can't easily access, such as a boosted (notice) pot. With Zopa, you would simply give sufficient notice once you start to approach that £85k limit (so at least 31 days before the offending interest payment is due), skim off any excess interest into an account you can withdraw from and re-boost the pot. Their 'pot' system makes this a simple process that would take minutes.

In general though, complications can presumably arise where interest is due on an account (that would take it over £85k limit) but which hasn't actually been paid into the account. Eg. a fixed rate account where interest is paid annually. For this reason, it makes sense to ensure that this isn't likely to happen by simply splitting the money between different financial institutions.

MSE themselves recommend that you don't deposit the full £85k with any one financial institution and that you should make an allowance for interest. One added benefit of this is that you also don't (temporarily) lose access to all of your money in the event of a problem with one of them.

"For perfect safety, save no more than £83,000 per institution (the extra £2,000 gives room for interest). Spreading can be worth it even if you've under £85,000; if your bank went bust, the money could be inaccessible for a spell. Using two accounts mitigates the risk."

Thanks for the info but I wasnt referring to the FSCS limit (although I am aware of that and anything above is not protected). I am just referring to ZOPA's account limit, regardless of protection or not

Yes we know that - the FSCS is discussion is stemmed from my comment "Though I think it's interesting [Zopa] set their limit at £85k, very likely to mirror FSCS protection limits - but in reality if someone was to deposit £85k, they would not be [FSCS] protected on any interest accrued."

With regards to Zopa - it's pretty clear-cut: once your account reaches £85k (through deposits or interest accrual), you can no longer deposit any more money. Your balance is able to above £85k as you accrue additional interest.