After recent volatility in the banking sector, is the current maximum protection for bank deposits likely to be increased?
Currently, the maximum deposit figure from an authorised bank covered by the Financial Service Compensation Scheme is £85,000. When the deposit is in joint names, the maximum value is £170,000. After the collapse of Silicon Valley Bank and UBS takeover of Credit Suisse, there have been increased calls for a review of the £85,000 compensation figure.
A look back on bank deposit protections
The last time the figure was increased was in January 2017, up from £75,000. From December 2010 to July 2015 the limit had also been £85,000. This was until it was cut under EU deposit protection rules. This set the limit at the sterling equivalent of €100,000.
The limit would now be around £120,000 if it had been index-linked when it was first set at £85,000.
Calls to raise the bank deposit protection limit
It has been suggested by both the Chancellor and the Governor of the Bank of England that the FSCS limit should be raised, given that the UK’s last experience of a bank run (Northern Rock in 2007) happened in a different age entirely.
If a similar crisis was to occur today, the news would be spread by social media in an instant. Instead of queuing outside a branch, we can envisage customers seeking to withdraw their deposits by phone or computer and money would drain away much faster than it did 16 years ago.
In an event like this, a higher level of deposit protection should mean there would be fewer depositors anxious to withdraw their money. By restricting the outflow there is a greater chance of a bank surviving.
It’s sensible to retain cash deposits to cover short term emergencies and satisfy short term income needs. Currently, there are a number of banks and building societies offering attractive interest rates, some of whom are not household names.
It is important to remember that those institutions offering the highest rates are doing so because they need to attract money in. If you are looking at placing significant sums on deposit, think about spreading your risk with different institutions and the statutory protection limits offered. Alternatively, you can use the National Savings deposit accounts that are underwritten by the Government.
If you would like to discuss your cash deposits or your financial plan as a whole, please get in contact with the Progeny team.