Savings compensation limit falls by £10,000 under European directive


The maximum amount that a saver will be protected by if their bank or building society goes bust will fall by £10,000 from tomorrow.

The Financial Services Compensation Scheme (FSCS) protects deposits held by a saver in a bank, building society or a credit union if it fails.

In July, the Bank of England announced that the £85,000 FSCS compensation limit previously put in place would be cut to £75,000 from January 1.

The change, which is a requirement of a European directive, has been described by commentators as "bonkers" and "absurd".

The FSCS deposit protection limit is recalculated every five years and set it at a sterling amount equivalent to 100,000 euro.

The £85,000 compensation limit was set in December 2010, based on the equivalent of 100,000 euro at the time.

The new £75,000 limit was set in July. The pound had strengthened against the euro as the crisis in Greece unfolded.

The Treasury put measures in place in July to hold the £85,000 limit until December 31, to give savers time to make arrangements to adjust.

The FSCS is the UK's compensation fund or "last resort" and it may pay out to consumers if a financial services firm is unable, or likely to be unable, to pay claims against it. Compensation limits are applied on a "per person" and a "per firm" basis.

It has said that more than 95% of consumers will still be protected under the new compensation limit.

Hannah Maundrell, editor in chief of, said: "Although 95% of savers should still be fully protected, the other 5% have a lot to lose if their bank or building society goes under.

"While this should be quite simple to navigate, it's made complicated by the fact FSCS cover is shared between banks that operate under the same FCA licence. For example, HSBC and First Direct fall under the same umbrella so share combined protection."

According to research by online savings provider GE Capital Direct among over 2,000 savers in November, more than half (56%) of people who had over £75,000 in savings said they had made no active changes to their money management to prepare for the new limit.

Of the 56% who had not yet done anything, nearly three-quarters (73%) had no plans to make changes before January 1, even though three in ten (29%) said that up to £50,000 of their cash will be left unprotected.

Andrew Tyrie, chairman of the Treasury Committee, previously said it was "absurd" that the depreciation of the euro should be forcing a reduction in the level of protection for UK deposit holders.

And Danny Cox, chartered financial planner, Hargreaves Lansdown, previously said: "This is absolutely bonkers. Savers are already suffering rock-bottom interest rates, and now to add insult to injury the safety of that cash is being undermined."

:: People can check to make sure that their savings are protected on the FSCS's website at