NS&I - How safe are my savings?

Overview

• how to claim for financial loss

• the role of the Financial Services Compensation Scheme

• what’s covered by the scheme, and what’s not

It’s sensible to be concerned about your savings’ security – so let’s take a look at what the rules would be if you needed to make a claim for compensation.

If you’re saving with NS&I, all the money you invest with NS&I is 100% secure, because it’s backed by HM Treasury. NS&I isn’t a bank or building society, but an Executive Agency of the Chancellor of the Exchequer.

If you are claiming for a loss with another institution after 31 December 2010, then you can turn to the Financial Services Compensation Scheme (FSCS). The scheme can pay compensation for financial loss of up to £85,000 on deposits, as long as the bank or building society is directly authorised by the Financial Services Authority (FSA). For couples with a joint account, the limit is up to £85,000 each.

Slightly different limits and rules apply if you have a claim against an insurer or a bank that was insolvent before this date.

Find out more on the FSCS website >

This £85,000 limit applies to each institution. So if you have multiple accounts with banks or building societies with the same parent company, you may only be covered once. The FSCS would pay up to the limit of £85,000 in total, unless each institution is separately authorised.

Since the beginning of 2010, investments have also received similar protection. The FSCS offers compensation in certain circumstances for organisations regulated by the FSA, and from 31 December 2010 only the first £85,000 is guaranteed.

In future, the coalition government has announced plans to transfer the regulation of financial services from the FSA to (primarily) the Bank of England by 2012.

Tip 1

If your savings and investments are over the £85,000 limit, you should check that they’re spread between different institutions recognised by the FSA.

How? Visit the FSA website or call on 0845 606 1234. If a UK bank, building society or financial institution isn’t listed, it may fall under a ‘group authorisation’ of its parent company.

Tip 2

Also, any compensation for lost savings or deposits is only made after any loans, mortgage or credit card debts with that bank or institution is paid off. So you might want to consider holding your savings or emergency money in a different institution to debts such as your mortgage.

What’s protected?

Bank and building society accounts

• Savings accounts

• Current accounts

• Small business accounts with annual turnovers below £1 million

• Credit union accounts

• Cash ISAs

Investments

• Investment funds that invest in stocks and shares

With an investment fund, 100% of the £85,000 is protected if your investment provider goes out of business. This doesn’t protect you from values dropping because investments perform badly. FSCS protection can be complex, so check with your provider or a financial adviser whether you’re covered.

Pensions and life assurance

• Stakeholder pensions (including those in ‘cash funds’)

• Money paid into life assurance products

These products usually fall under the category of 'long-term insurance', meaning that 90% of what's in them is protected, with no upper limit.

Self-Invested Personal Pensions (SIPPs)

• Investments in stock market funds or other investment vehicles: 100% of the first £85,000

• Cash in a SIPP: £85,000 per person per institution

Your SIPP provider will tell you which banks the cash is held in, so you can check if it's ‘linked’ to any others you have savings with. In that instance, you may only be covered once if some institutions are linked and not separately authorised with the FSA.

For cash in a SIPP, your money is generally ring-fenced from the SIPP provider. This means that if they go out of business, your money is safe.

Insurance

If you take out home, car, travel or loan insurance protection and the provider defaults, the FSCS may cover you in two main ways:

• If you need to claim when an insurer defaults, the FSCS will try to find another provider to take over your policy, or issue a substitute policy.

• If you have any ongoing claims, or need to make a claim before a new insurer is found, the FSCS should ensure these are covered. Any money you've already paid as a premium will be refunded as compensation via the FSCS.

What isn’t covered?

• Saving stamps

• Hamper schemes

• Savings schemes for Christmas clubs

• PayPal accounts

• Cashback or loyalty card schemes that offer points