ISA over £85K

SteveV2

A great shout would also be to transfer into an isa that pays interest monthly and have the interest paid into a regular saving account.

Rich2808

I think it depends who the institution is.

A major high street bank or large building society going under could in effect bring down the economy - so the government would intervene quickly and your entire savings would almost certainly be protected. And in the end is the £85k itself even guaranteed if there is a widescale collapse as nearly happened in October 2008.

I once invested in an ISA with a small credit union - well below £85k - who effectively went insolvent and froze access to funds for months. But it took ages for the FSCS to address their problems and pay out when it was essentially bust.

So I wouldn't worry -  just don't do so with a small provider as the pressure/media interest won't be there to get issues resolved.

eskbanker

Rich2808 said:

I once invested in an ISA with a small credit union - well below £85k - who effectively went insolvent and froze access to funds for months. But it took ages for the FSCS to address their problems and pay out when it was essentially bust.

Presumably the issue being that the FSCS processes aren't driven by 'effectively' or 'essentially' but 'actually'?

Essex123

SteveV2 said:

A great shout would also be to transfer into an isa that pays interest monthly and have the interest paid into a regular saving account.

Hmm only if you don’t mind the interest coming out of the ISA tax free wrapper meaning it won’t compound tax free interest in the future.

slinger2

Essex123 said:

SteveV2 said:

A great shout would also be to transfer into an isa that pays interest monthly and have the interest paid into a regular saving account.

Hmm only if you don’t mind the interest coming out of the ISA tax free wrapper meaning it won’t compound tax free interest in the future.

Personally, paying ISA interest into a non-ISA account is the last thing I'd consider doing. I'm trying to maximise the amount of money in the ISA system.

Rich2808

eskbanker said:

Rich2808 said:

I once invested in an ISA with a small credit union - well below £85k - who effectively went insolvent and froze access to funds for months. But it took ages for the FSCS to address their problems and pay out when it was essentially bust.

Presumably the issue being that the FSCS processes aren't driven by 'effectively' or 'essentially' but 'actually'?

Our accounts were frozen for months - we could not withdraw funds (but the CU did keep emailing asking us all to pay more in). But because it was a small credit union with few customers FSCS action moved at a snails pace.

Do you think if a major high street bank suddenly told all its customers they couldn't withdraw their funds from their cash savings accounts and current accounts the government would wait months - no action would take place within 24 hours to address the matter! 

That is the difference!

eskbanker

Rich2808 said:

eskbanker said:

Rich2808 said:

I once invested in an ISA with a small credit union - well below £85k - who effectively went insolvent and froze access to funds for months. But it took ages for the FSCS to address their problems and pay out when it was essentially bust.

Presumably the issue being that the FSCS processes aren't driven by 'effectively' or 'essentially' but 'actually'?

Our accounts were frozen for months - we could not withdraw funds (but the CU did keep emailing asking us all to pay more in). But because it was a small credit union with few customers FSCS action moved at a snails pace.

Do you think if a major high street bank suddenly told all its customers they couldn't withdraw their funds from their cash savings accounts and current accounts the government would wait months - no action would take place within 24 hours to address the matter! 

That is the difference!

I'm not disputing that there's an extra degree of safety from using institutions likely to be considered 'too big to fail' and where there's a consequently high probability of government intervention, but was simply highlighting that the standard FSCS processes will revolve around reimbursing customers of institutions which have actually failed rather than those experiencing pre-failure issues - they do make a commitment that "FSCS will pay compensation within seven working days of a bank, building society or credit union failing".

masonic

Rich2808 said:

eskbanker said:

Rich2808 said:

I once invested in an ISA with a small credit union - well below £85k - who effectively went insolvent and froze access to funds for months. But it took ages for the FSCS to address their problems and pay out when it was essentially bust.

Presumably the issue being that the FSCS processes aren't driven by 'effectively' or 'essentially' but 'actually'?

Our accounts were frozen for months - we could not withdraw funds (but the CU did keep emailing asking us all to pay more in). But because it was a small credit union with few customers FSCS action moved at a snails pace.

Do you think if a major high street bank suddenly told all its customers they couldn't withdraw their funds from their cash savings accounts and current accounts the government would wait months - no action would take place within 24 hours to address the matter! 

That is the difference!

Credit Unions operate under a different regulatory regime. This is why I would never put a meaningful amount of money into a CU. It is a rather regular occurrence that they fail, but they do not have the capital requirements of other financial institutions, and lenders' money is to a greater degree locked up in contracts to individuals of a lower credit rating than the mainstream market. I believe the instance to which you are referring happened due to the PRA prohibiting the CU from repaying savers, which did mean they were technically insolvent, but rather sealed their fate given their borrowers tended to be in a financially weak position themselves. One of the risks when looking beyond mainstream savings products, albeit not a risk that MSE foresaw. A good reason why credit union accounts on offer today should be given a prod with the bargepole.