How safe do you stick to the 85K FSCS Protection?

Albermarle

Band7 said:

subjecttocontract said:

Well if you start with £85k and your interest is paid at the end of the year and you reduce the balance back to £85k immediately then your excess is at risk for a very short time.

That plan wouldn’t work very well with fix term accounts which run for more than 12 months.

subjecttocontract said:

 
Presumably if the bank went bust 10 months into your 1 year account......you wouldn't get the interest payment anyway !

In the 2 cases I needed FSCS, the balances returned included interest up to the day of default. Though I believe this isn’t necessarily always guaranteed.

It is possible to have interest paid out of a fixed term account annually, with most providers anyway.

diystarter7

The risk is there and that is a fact.
Therefore, you decide is it worth the risk and IMO, no. unless you have millions then go for it as with that amount one can digest a odd 100k loss without any real impact on their lifestyle.

Band7

Albermarle said:

Band7 said:

subjecttocontract said:

Well if you start with £85k and your interest is paid at the end of the year and you reduce the balance back to £85k immediately then your excess is at risk for a very short time.

That plan wouldn’t work very well with fix term accounts which run for more than 12 months.

subjecttocontract said:

 
Presumably if the bank went bust 10 months into your 1 year account......you wouldn't get the interest payment anyway !

In the 2 cases I needed FSCS, the balances returned included interest up to the day of default. Though I believe this isn’t necessarily always guaranteed.

It is possible to have interest paid out of a fixed term account annually, with most providers anyway

Of course it is possible to do that in many cases. But then there is no risk you bust the £85k, so the plan to withdraw the interest after a "very short time" wouldn't be relevant, anyway. It would also mean that your interest doesn't compound at the rate of the savings account you withdrew the interest from.

Swipe

I've had 6 figures in multiple main stream banks at anyone time and not been worried at all but I'd definitely not have more than the 85K in the smaller ones. I'd not be too worried about it going a few hundred quid over the limit after interest though.

GeoffTF

I sometimes go over £85K for a few days with the biggest banks. It would be very inconvenient for me to avoid doing that on occasions.

IvanOpinion

I have always thought that the government and industry must think there is very little possible risk of it being tapped into. If, for some obscure reason, it is ever required then it would not surprise me if the actual pay out was based on how many pence in the pound customers get.

alternate

IvanOpinion said:

I have always thought that the government and industry must think there is very little possible risk of it being tapped into. If, for some obscure reason, it is ever required then it would not surprise me if the actual pay out was based on how many pence in the pound customers get.

It isn't a fund as such - it is just a government guarantee.  If they were to ever pay out under it then it would be a case of cover it in full or destroy trust in the banking system - the subsequent run on the banks would crash the economy.

It is very unlikely the guarantee is significantly tested as it is more likely they would operate as they have in the past - either take public stakes in banks (like in 2008) as a precautionary measure or nationalise smaller banks (like with Northern Rock).

I believe only major time FSCS protection has come in to play was when the government voluntarily paid out Icesave customers and dealt with the claim on the Icelandic government.

Band7

alternate said:

IvanOpinion said:

I have always thought that the government and industry must think there is very little possible risk of it being tapped into. If, for some obscure reason, it is ever required then it would not surprise me if the actual pay out was based on how many pence in the pound customers get.

It isn't a fund as such - it is just a government guarantee.  

FSCS is not a government guarantee, and it is very much a fund. Not a fund that's traded on the stock market, but a fund that is administered by FSCS, with statutory levies paid by the financial services industry. https://www.fscs.org.uk/about-us/funding/

Band7

alternate said:

I believe only major time FSCS protection has come in to play was when the government voluntarily paid out Icesave customers and dealt with the claim on the Icelandic government.

Icesave/Kaupthing were indeed a very significant failure, covered mainly by the Treasury, rather than by the FSCS. The Treasury has recovered all the monies they/the taxpayer had spent when reimbursing the victims of the collapses.

I very much doubt the Treasury would do anything like this again, as since then, FSCS has been substantially beefed up, and the banks have been made to split their retail and investment arms, and have undergone other major measures to minimise the risk of another collapse.

It's now mainly tinpot credit unions that still fail. Since 2011 FSCS has paid out over £60 million to customers of approximately 50 failed credit unions and one small bank.

MA260

It is generally not worth the risk in that you can receive similar interest across banks. Although as an aside would anyone ever own shares invest on stock markets or pensions if they were that risk adverse as this is the smallest of risks compared to owning any other asset.

There has been a lot of regulation since 2008 to reduce the risk of these scenarios.  You would think you would here murmurings on the financial markets, in the press or on bulletin boards like this before anything happened to an institution and you would have some warning to take action.