An FSCS thought

RobM99

The FSCS protects £85,000. If you put all that into a 5 year fix and the bank goes Poomf! after 4 years, would you lose all the interest? If so, that would make saving (say) £82,500 a better bet, or am I missing something?

masonic

You could only claim a maximum of £85k, so if you hold £85k capital at a bank, your interest would definitely not be covered. The FSCS does normally cover accrued interest to the point of failure, so it would make sense to hold less than £85k if you want that protected too.

Interest is normally paid monthly or annually (rarely all at maturity), and could potentially be paid away to another bank account. That should factor into your calculations, since a monthly interest option paid away would only expose you to up to a month's interest at risk.

wmb194

RobM99 said:

The FSCS protects £85,000. If you put all that into a 5 year fix and the bank goes Poomf! after 4 years, would you lose all the interest? If so, that would make saving (say) £82,500 a better bet, or am I missing something?

Most savings bonds pay out interest to an external account monthly or annually - or they have at least have this option - but yes, if it's accruing in the account and you're worried about this then depositing less than £85k would be sensible. The exact amount will depend on the interest rate, of course.

RobM99

masonic said:

You could only claim a maximum of £85k, so if you hold £85k capital at a bank, your interest would definitely not be covered. The FSCS does normally cover accrued interest to the point of failure, so it would make sense to hold less than £85k if you want that protected too.

Interest is normally paid monthly or annually (rarely all at maturity), and could potentially be paid away to another bank account. That should factor into your calculations, since a monthly interest option paid away would only expose you to up to a month's interest at risk.

Good thinking! Monthly would be an option well worth doing. Thanks for the simple response, explains it all without waffle!

RobM99

It's not something I'm able to do, just wondered.

born_again

FSCS will pay out a max of £85K, but after that any funds left from the sale etc of bank will be shared with creditors. So if you had interest taking it over £85K then you might get it.

Odds on any bank going bust. Very slim.

RobM99

born_again said:

Odds on any bank going bust. Very slim.

It has happened (Baring, ICICI) but as you say, highly unlikely.

masonic

It does depend on the provider. From time to time a credit union feature in the best buy tables, and we see a lot more of those go to the wall.

eskbanker

While recognising that it's a hypothetical scenario, anyone with £85K and not needing to access it for at least five years might be better considering investing at least some of it rather than leaving it all in cash form, where it's practically guaranteed to lose real-terms value to inflation....

Daliah

RobM99 said:

born_again said:

Odds on any bank going bust. Very slim.

It has happened (Baring, ICICI) but as you say, highly unlikely.

When did ICICI go bust?

Daliah

born_again said:

Odds on any bank going bust. Very slim.

There are lots of smaller banks, and some of them might not survive. More likely than not, they might get taken over by larger banks. FSCS provides certainty, to a large extent at least, for depositors that they don't have to worry about collapses.