Safeguarding large cash balances

As concerns have intensified over the last few months regarding the stability of financial institutions, the Financial Services Compensation Scheme (FSCS) has taken steps to extend its protection for savers with temporary high cash balances.

In addition to the protection provided for deposits with banks, building societies and credit unions of £85,000 per person, further protection for consumers with temporarily high balances of up to £1m also exists and has been extended due to the pandemic. Having a large balance for a short period of time is inevitable in certain situations, such as a house sale, redundancy, divorce settlement or an insurance payout.

In normal circumstances, these temporary high balances are protected for six months, with the FSCS automatically paying compensation if the financial institution failed. However, from 6 August 2020, the FSCS extended its coverage to 12 months. The scheme will revert to a six-month cover period from 1 February 2021.

This temporary extension addresses consumers’ concerns that money could be on deposit for longer, due to a slowdown in the banking system and reduced access to banking services for many people. FSCS Chief Executive Caroline Rainbird commented, “The coronavirus pandemic has been very worrying for everyone, and people are understandably concerned about the possibility of losing their temporary high balance should their deposit taker fail. The temporary extension of FSCS‘s protection from six to 12 months will do much to reassure them should the worst happen during these uncertain times.”