Whether saving cash in a bank or investing money in a unit trust you need to be sure what compensation you may get if the company goes into liquidation.
Here are details of what is covered under the Financial Services Compensation Scheme (FSCS):
Banks and building society deposits
If you have an account with a bank or building society that becomes insolvent you will be contacted by the FSCS, or the liquidator. Cash up to £85,000 per person, £170,000 for joint accounts, will be protected under the FSCS. If a customer has savings in different banks that are part of the same group, then the compensation limit is £85,000 in total, across all bank accounts under the same authorisation.
Credit Unions
The FSCS can pay compensation up to £85,000 per person if a credit union is unable to pay back deposits it owes to its members. Members of a credit union will not need to apply for compensation as the FSCS will send compensation to them automatically and in the majority of cases within seven days.
Investments
Compensation is only payable when an authorised firm is declared in default after investigation by the FSCS. The maximum level of compensation is £85,000 per person per firm. Investments covered are stocks and shares, unit trusts, future and options and other long-term investments. The compensation cover is only triggered when a product provider goes bust, or for a loss arising from poor advice rather the collapse of the underlying investment.
Investment trusts and exchange traded funds are considered shares in a company and are therefore not covered by the FSCS unless there is a case for bad advice.
Investments in a SIPP are typically ring-fenced away from the provider, so funds shouldn't be affected if the SIPP provider goes bust.
Overseas banks
From December 2010, all EU countries increased their compensation limit to €100,000. So if a bank is not regulated in the UK then it is more than likely covered by the EU scheme. However, deposits held outside the European Economic Area are not covered, this would apply, therefore, to the Channel Islands and the Isle of Man.
