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Changes to Deposit Account Protection

Currently, anyone who has up to £85,000 in a bank or building society would be covered if the institution goes bust. However, the Prudential Regulation Authority (PRA) has recently decreased this limit to £75,000.

Due to transitional measures put in place by HM Treasury to ensure that depositors have suitable time to plan for and adjust to the change, the majority of savers covered by the FSCS will see their level of deposit protection maintained for six months before reducing to £75,000 after 31st December 2015.

At present, the £85,000 limit applies to the total eligible deposits of each person. If a joint account is held, each account holder is protected up to £85,000, so a couple would be covered up to a total of £170,000, per PRA-authorised firm. Under the new rules, from 1st January 2016, the total amount for a joint account will drop to £150,000.

The PRA is currently consulting on rules to help manage the impact of the limit change of depositors who were previously protected by the FSCS and are contractually tied into products with balances over £75,000. As a result of this consultation, depositors may be allowed to withdraw funds between the old and new limits without penalty from 1 August 2015 until 31 December 2015 if they experience a decrease in deposit protection as a result of the limit change. However, this is still to be confirmed.

In addition to the changes above, from the start of July, depositors with temporary high balances will be covered up to £1 million for six months from the date on which the money is transferred into their account, or the date on which the depositor becomes entitled to the amount. This is to give depositors time to spread the risk between institutions following a house sale, divorce settlement or inheritance etc.

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