FSCS cover on "contractual" interest on fixed term accounts

intalex

Does FSCS cover the contractual interest over the entire term of a fixed rate account, if for example a bank offering the account goes under part way through the fixed rate term?

Just wondering if it's worth setting the initial principal accordingly to allow headroom for the full interest income covering the entire fixed term.

ToastLady

Much better to leave headroom for any interest accrued. I never put full £85000 into any bank or any group of banks under same umbrella. 

wmb194

intalex said:

Does FSCS cover the contractual interest over the entire term of a fixed rate account, if for example a bank offering the account goes under part way through the fixed rate term?

Just wondering if it's worth setting the initial principal accordingly to allow headroom for the full interest income covering the entire fixed term.

It covers accrued interest up to the point of failure. I always opt for monthly interest paid away so I don't worry much about this sort of thing.

intalex

I meant the full value of interest for the entire term, not just the accrued portion.

I think the accrued portion is most likely covered as you've already "done the time" for it, but it's more about the "contractual" interest for the remaining term which you signed up to.

wmb194

intalex said:

I meant the full value of interest for the entire term, not just the accrued portion.

I think the accrued portion is most likely covered as you've already "done the time" for it, but it's more about the "contractual" interest for the remaining term which you signed up to.

No, just accrued interest to the point of failure.

intalex

Then it can be argued that a long term (5+ years) fixed rate with a "bigger" bank or NS&I (or a Gilt) is worth a 10-20% lower interest rate??

wmb194

intalex said:

Then it can be argued that a long term (5+ years) fixed rate with a "bigger" bank or NS&I (or a Gilt) is worth a 10-20% lower interest rate??

You're presuming that the FSCS won't return your money before the end of the term?

intalex

wmb194 said:

intalex said:

Then it can be argued that a long term (5+ years) fixed rate with a "bigger" bank or NS&I (or a Gilt) is worth a 10-20% lower interest rate??

You're presuming that the FSCS won't return your money before the end of the term?

No, I'm being specific about the risk of losing supposedly guaranteed returns over the entire term.

wmb194

intalex said:

wmb194 said:

intalex said:

Then it can be argued that a long term (5+ years) fixed rate with a "bigger" bank or NS&I (or a Gilt) is worth a 10-20% lower interest rate??

You're presuming that the FSCS won't return your money before the end of the term?

No, I'm being specific about the risk of losing supposedly guaranteed returns over the entire term.

But you'd get your money back and you'd be able to reinvest it somewhere else.

intalex

wmb194 said:

But you'd get your money back and you'd be able to reinvest it somewhere else.

Depending on where the market is, at potentially lower returns, hence the loss of guaranteed returns!

On the flipside, when you don't have the option to opt out of a fix part way through the term.

Hopefully I'm being clear on where the risk/issue is, if FSCS don't cover the guaranteed returns over the entire term from the agreed fix rate (or at least bridge the gap to potentially lower returns)?

wmb194

intalex said:

wmb194 said:

But you'd get your money back and you'd be able to reinvest it somewhere else.

Depending on where the market is, at potentially lower returns, hence the loss of guaranteed returns!

On the flipside, when you don't have the option to opt out of a fix part way through the term.

Hopefully I'm being clear on where the risk/issue is, if FSCS don't cover the guaranteed returns over the entire term from the agreed fix rate (or at least bridge the gap to potentially lower returns)?

Of course, but rates could also be higher.

Which bank(s) are you worried about? Personally I wouldn't worry too much about a low probability event where the downside is probably small but if guaranteed returns are important to you then yes, perhaps you should accept a lower rate from an institution you consider to be less likely to fail.