Raising FSCS Protection Limit

masonic

After any FSCS compensation, you'd be at the back of the queue with other unsecured creditors of the business. Priority, secured lenders, and of course the administrators would need to be repaid in full before you'd see any distribution. I don't know whether the FSCS itself would take priority with the debt you assigned it to receive your compensation.

1spiral

ranciduk said:

1spiral said:

I was going to post this reply in the Birmingham bank thread but rather than send that thread off track I thought I'd start a new one.

I had someone elses bank statement sent to me once. They had just shy of 500K in their current account.

Now OK 500K is a lot but I suspect it was pretty much all of their life savings. I assumed some old retired couple in their 70's. If their bank (Barclays) had gone under, I'm pretty sure they'd miss the 415K that wasn't covered.

As any catastrophic failure of a big bank is likely to be bailed out anyway, I wonder what impact raising that limit to say 500K or even 1M would have.

As banks only need a finite source of funds I would've thought the problem is self limiting.

Lets say very small bank y requires 8.5m, currently they may get to that with 100 deposits of 85K.

If the limit was raised to 500K, they may get there with 17 deposits of 500K.

Either way, the bank would stop new deposits when its demand is met and the FSCS protection would still pay out 8.5m, just to fewer people in the second scenario.

I'm struggling to come up with any reason as to why there is any attempt to limit protection at a level which is about 1/4 of the average house price other than there are a lot of people like the couple mentioned above that have excess funds in their bank accounts and the government really aren't bothered about protecting them officially.

So you opened someone else’s mail?

No it was addressed to me. It was a returned statement sent as proof of ID. The company returned someone elses to me rather than mine.

ranciduk

1spiral said:

ranciduk said:

1spiral said:

I was going to post this reply in the Birmingham bank thread but rather than send that thread off track I thought I'd start a new one.

I had someone elses bank statement sent to me once. They had just shy of 500K in their current account.

Now OK 500K is a lot but I suspect it was pretty much all of their life savings. I assumed some old retired couple in their 70's. If their bank (Barclays) had gone under, I'm pretty sure they'd miss the 415K that wasn't covered.

As any catastrophic failure of a big bank is likely to be bailed out anyway, I wonder what impact raising that limit to say 500K or even 1M would have.

As banks only need a finite source of funds I would've thought the problem is self limiting.

Lets say very small bank y requires 8.5m, currently they may get to that with 100 deposits of 85K.

If the limit was raised to 500K, they may get there with 17 deposits of 500K.

Either way, the bank would stop new deposits when its demand is met and the FSCS protection would still pay out 8.5m, just to fewer people in the second scenario.

I'm struggling to come up with any reason as to why there is any attempt to limit protection at a level which is about 1/4 of the average house price other than there are a lot of people like the couple mentioned above that have excess funds in their bank accounts and the government really aren't bothered about protecting them officially.

So you opened someone else’s mail?

No it was addressed to me. It was a returned statement sent as proof of ID. The company returned someone elses to me rather than mine.

Fair enough mate! 🙂👍

poseidon1

Worthwhile remembering the present £85k limit resulted from HMG determining it should increase its compensation for failed banks in line with Europe's 100k Euro - see below

https://www.gov.uk/government/news/government-acts-to-support-depositors-during-change-to-a-new-financial-services-compensation-scheme-coverage-level#:~:text=The FSCS deposit protection limit was set,at the time was equivalent to €100,000.&text=Over 95% of retail depositors will continue,limit of £75,000 following 31 December 2015.

Having now disengaged from Europe ( and its lead in various areas of consumer protection), seems to me FSCS protection of bank accounts should be periodically reviewed to take account of inflation and the declining buying power of the pound. 

 As regards purchasing power,  £1 in 2010 is around £1.63 now, having lost almost 40% purchasing power in that relatively short period.

masonic

poseidon1 said:
Having now disengaged from Europe ( and its lead in various areas of consumer protection), seems to me FSCS protection of bank accounts should be periodically reviewed to take account of inflation and the declining buying power of the pound. 

 As regards purchasing power,  £1 in 2010 is around £1.63 now, having lost almost 40% purchasing power in that relatively short period.

It was £50k immediately before being aligned with the EU standard, so had it been left to rise in line with inflation it would be around £85k today.

cwep2

There was talk earlier this year about raising it. The PRA was mooting a rise to 110k partly to keep up with inflation.

See this link (sorry if it's behind a paywall, not sure as I have a FT subscription):
https://www.ftadviser.com/financial-services-compensation-scheme-ltd/2025/3/31/fscs-deposit-protection-limit-may-rise-to-110k/

eskbanker

poseidon1 said:

Having now disengaged from Europe ( and its lead in various areas of consumer protection), seems to me FSCS protection of bank accounts should be periodically reviewed to take account of inflation and the declining buying power of the pound.

As mentioned in one of the earlier threads on this subject, it is a legislative requirement for such periodic reviews to happen, no less than every five years and hence consultation happening currently:

https://forums.moneysavingexpert.com/discussion/comment/81380127/#Comment_81380127

Olenna

poseidon1 said:

Worthwhile remembering the present £85k limit resulted from HMG determining it should increase its compensation for failed banks in line with Europe's 100k Euro - see below

https://www.gov.uk/government/news/government-acts-to-support-depositors-during-change-to-a-new-financial-services-compensation-scheme-coverage-level#:~:text=The FSCS deposit protection limit was set,at the time was equivalent to €100,000.&text=Over 95% of retail depositors will continue,limit of £75,000 following 31 December 2015.

Having now disengaged from Europe ( and its lead in various areas of consumer protection), seems to me FSCS protection of bank accounts should be periodically reviewed to take account of inflation and the declining buying power of the pound. 

 As regards purchasing power,  £1 in 2010 is around £1.63 now, having lost almost 40% purchasing power in that relatively short period.

A good story is better than the truth - Elim Garak

The limit was reviewed due to re-aligning of FSCS style schemes across the EU/EEA with €100k value. This wasn't some HMG determination like you suggest; there is an obligation to periodically adjust and re-align for all non-Eurozone EU/EEA countries.

I'm not aware of the UK having disengaged from Europe to somewhere in the mid-Atlantic as you suggest but it seems pointless to intentionally misalign more with the EU/EEA norms given the UK is clearly going re-align more and more with EU/EEA standards going forward. 

Bigwheels1111

I look at this issue this way.
If the limit goes up good, if not Ok.

Everyone is fixated on the 85k limit.
People see the 85k limit and say my money is safe, Job done.
So they put 85k in a savings account, think my money is safe and I’m done.
Interest at 5% 0n 85k is £4250.00 a year, over the 85k limit, which is unlikely to be paid out if bank fails.
Did they think about that, probably No.
I did so limited my accounts to 81k at 5%, I’m risking £50 of interest only.

The bad old days.

https://www.thisismoney.co.uk/money/article-1265818/CITY-FOCUS-Counting-cost-Icelands-crash.html

eskbanker

Bigwheels1111 said:

Everyone is fixated on the 85k limit.

Including those who repeatedly post at length about leaving headroom for interest, even when not directly relevant to the matter under discussion?