The Christmas period may have distracted many savers, from the fact that their savings will now receive a lower level of protection, than was previously the case.
From 1st January 2016, savings will only be covered up to £75,000 per person, per authorised institution by the Financial Services Copensation Scheme (FSCS), a £10,000 reduction on the previous level of cover.
Responding to the change, Mark Neale, FSCS Chief Executive, said: “The good news is that the new limit will protect some 97% of people, with about 93% of consumers having £50,000 or less in savings. What hasn’t changed is the service FSCS provides consumers should the worst happen to their bank, building society or credit union. We continue to be there for them.” (Source: FSCS)
The new limit will apply to all savings accounts, including those held in a Self-Invested Personal Pension.
Problems for savers
The new limit causes a number of problems for savers.
Problem #1: There is the obvious issue that savers with more than £75,000 in their account will not be fully covered should the bank or building society they are using goes bust.
Problem #2: If you wish to move excess cash, above the new £75,000 limit, you may face penalties if it is held in an account which requires notice or has to be held for a fixed period.
Problem #3: The interest rate on the account you move your savings to, could well be lower than you were previously getting.
Finally, if you are holding a savings account in your SIPP, on top of these three problems you may well be charged by your SIPP provider for opening a new account.
The solution?
If you your savings to be fully protected, and you have more than £75,000 with a single institution, you will need to move some of your savings.
However, the additional security could come at a price, in the form of a penalty, or a lower interest rate.
First things first though, you need all the information, including:
- Your current balance – is it over £75,000
- What interest rate are you currently getting?
- Will you have to pay any penalties to move some of your savings
- How does the interest rate on the account you might move your savings to, compare to what you are getting now?
Only once you have all this information can you make an informed decision; it’s then that age old decision faced by investors and savers: risk v return.
A word on Cash ISAs
Remember, if you are reducing a balance in a Cash ISA, this should be done as a partial transfer to another Cash ISA.
Taking money out and reinvesting it into another Cash ISA will mean using up part of your allowance for the current tax year.
Always move Cash ISAs as a transfer.
We are here to help
If you have questions about the new compensation limits, or would like advice on the right option for you, we are here to help.
Call Bev or Sarah on 0115 933 8433 or email info@investmentsense.co.uk
