What does 'financial institution' exactly refer to?
There is no cut-and-dry answer. For many years, banks have been absorbed by others or merged with other banks, making the definition hard to delineate. It all depends on the technical nature of the company's personality as it is registered at the FCA.
Some difficulties, therefore, arise – for instance:
If you save money in the Bank of Scotland, Halifax and BM Savings, which belong to one group, the covered amount is also considered as one. Hence, you get only £85,000.
If you save money in the Royal Bank of Scotland, Ulster and NatWest, which all belong to the giant RBS conglomerate; you get £85,000 protection for every one of three banks where you have put money.
Which banks are linked?
You may visit websites to help you find out if your bank shares its savings protection.
Or you may check the FCA registration number on your bank's website. If the institution is not among those listed, it does not necessarily mean it has no protected. Their last complete update of list was on April 2017.
What about bank takeovers?
In the even that your bank has been taken over, the actual protection on your money can depend on the date you opened your savings account. A merger-by-merger guide is given below:
- Santander (Alliance & Leicester and Bradford & Bingley)
- Lloyds Banking Group, Halifax and TSB
- Barclays and ING Direct
- Virgin Money and Northern Rock
- AA Savings and Bank of Ireland UK
- Marfin Laiki Bank and Bank of Cyprus UK
What happens when my building society has merged with another?
As a result of a financial crisis in the past, several building society takeovers flooded the news. At the start of such an occurrence, the Government acted to cover savings in two different building societies that merged; however, that applied only until December 2010.
Hence, if you have savings in several of the institutions listed under the groups listed below, you only stand to receive £85,000 cover within that group:
- Co-operative Bank and Britannia
- Yorkshire, Chelsea, Barnsley, Norwich & Peterborough building societies, plus Egg
- Nottingham and Shepshed building societies, trading as Nottingham BS
Nationwide previously shared its protection with Derbyshire, Cheshire, and Dunfermline Building Societies, but all products under the three minor building societies are now branded as Nationwide. This also goes for Coventry BS and Stroud & Swindon BS – all previous accounts with S&S are now branded as Coventry.
What of foreign-bank savings?
Numerous banks originating from overseas operate in Britain, such as Santander, Yorkshire Bank and ICICI. Unless they are not technically "offshore" accounts, the parent bank does not matter.
If the bank is UK-regulated, you will receive the same £85,000 coverage for every individual. However, there is a grayish area:
In the event that a bank falls into difficulties, a bailout might cover your savings, providing protection for your money (although there is no full guarantee to that effect). This happened not only to UK-owned Northern Rock and Bradford & Bingley, but also to Iceland-owned (but UK-regulated) Kaupthing Edge.
As much as possible, limit your savings under the £85,000 limit, since the protection is a goal but not a guaranteed promise in case of a bank run. Nevertheless, this is specifically applicable to non-European banks, as this has not been proven in reality so far (and we are hoping it will never happen!).
Not all European banks are UK protected
A bank could be operating in the UK with the FCA's complete approval; but the FSCS may not provide protection for the money you put into them. Be more careful then about European-owned banks than those owned by overseas companies.
The reason behind this caveat is that banks from the European Economic Area may choose to have a protection that is slightly variant, referred to as the 'passport' scheme, meaning you would have to claim compensation for your money from the compensation program in the bank's originating country.
Overseas banks are not allowed to do this in Europe; hence, they have to provide complete UK compensation if they operate in UK.
Remember, if you save with one of those banks owned by overseas companies, the safety of your savings will depend on the foreign nation's stability and solvency or their authorized financial regulator.
Certainly, there are some countries that have greater financially stability than the UK; however, you will then rely on a government upon which you do not have complete trust to protect your savings.
But on the bright side, beginning in 2010, every European nation has been required to set a compensation cap of €100,000 (which is equivalent to £85,000 in UK, which does not use the euro).
In case you have savings in a European bank that is presently protected by the FSCS at the maximum limit and it converts to the 'passport' scheme, the bank should inform you of the change.
Finally, a European bank may also operate in the UK while applying its own home-compensation program that may be below the UK limit, giving you protection only for that lower amount. Under this arrangement, the overseas bank will not be FCA-regulated but remains regulated by its government's own protection program.
Nevertheless, accounts with these banks sometimes provide higher rates compared to UK-protected banks.
Remember then that dealing with non-UK regulated banks may result in difficulty of getting back your money in the event of a bank failure.