Cash in the bank: What happens to your money if your bank fails?

With the collapse of Silicon Valley Bank (SVB) and recent difficulties faced by Credit Suisse, which was rescued by its rival UBS for the equivalent of £2.65 billion in an emergency deal, some fear that this could be a slow-rolling banking crisis.

While there have been many stories published about the events leading up to the problems faced by both SVB and Credit Suisse, you may have been left worrying about what happens to your money if your bank fails.

In Britain, the Financial Services Compensation Scheme provides protection

The Financial Services Compensation Scheme (FCSC) offers protection for money held in banks or other financial institutions that go out of business.

According to their annual report, in 2021/22, the FCSC paid out £584 million, helping 108,838 people. Reassuringly, 100% of customers making a claim using its online claims service received the compensation they were owed. And 98% of all claims made were submitted online.

Payments from the FSCS are subject to certain criteria

Although the FSCS was set up by the government, they are independent, and the service is free to use. However, there are a few things that it's worth understanding to help you avoid losing significant sums of money should the unthinkable happen.

The FSCS covers authorised financial services companies

Should the financial organisation holding your money fail, in most cases, your money is protected up to a maximum of £85,000, or £170,000 for joint accounts.

This includes money held in:

  • Banks and building societies
  • Credit unions
  • Debt management companies
  • Home finance intermediation firms
  • Life and pension providers
  • Investment companies.

In some circumstances you could have up to £1 million worth of protection for 6 months

Certain life events could have caused a temporary high balance in your bank account. This might include:

  • A house sale
  • Redundancy
  • Divorce or dissolution of a civil partnership
  • Benefits payable on retirement
  • An inheritance pay out.

These are just a handful of examples. You can find a full list of a full list, visit the FSCS website where you will also find details of how to make a claim.

Some offshore accounts could be covered by the FSCS

Offshore savings account often pay higher interest rates, making them an attractive proposition. However, to operate in the UK, banks outside the European Economic Area (EEA) need to be authorised by the Financial Conduct Authority (FCA). This means that they are usually covered by the UK’s FSCS scheme.

FSCS provides protection for money deposited with UK institution

Because the FSCS applies to the bank, not the individual, if you are an expat and have money that is held by a UK financial organisation, you should be protected under the scheme.

Should you have savings or assets held overseas, the protection will differ.

The European Economic Area (EEA) have their own compensation schemes

Designed to protect customers from losses and avoid mass withdrawals and potential economic instability were a bank to fail, protection from EU deposit guarantee schemes includes:

  • Individual insurance of €100,000 for funds held with individual financial organisation
  • Insurance against small and medium-sized business pension schemes.

Although the rules are universal across the EU banking union, specific protection may vary. So, it's wise to ensure that you only deposit funds with a respected bank, and check that it is registered with the appropriate deposit protection scheme.

US consumer deposit insurance

The financial insurance scheme in America is called the Federal Deposit Insurance Corporation (FDIC).This provides $250,000 insurance for every individual, for each bank. The same limit applies across each account category.

This scheme only protects deposit accounts, such as savings, checking, and money market accounts. Non-deposit investment products such as life insurance policies, stocks, bonds, annuities, and mutual funds are excluded.

Many online transfer providers and digital wallets may also fall outside of the regulatory scope. Other exceptions apply to state-run and insurance banks, such as the Bank of North Dakota.

If in doubt, the FDIC provides an online search facility to help you find FDIC-insured banks.

Should you want to find out how well protected your US funds are or would like to learn more about how you could ensure further protection, please get in touch.

Canadian consumers are protected by the Canada Deposit Insurance Corporation

The Canada Deposit Insurance Corporation (CDIC) provides protection up to $100,000. Cover applies to:

  • Savings and chequing accounts
  • Foreign currency deposits
  • Term deposits, such as Guaranteed Investment Certificates (GICs)
  • Other term deposits.

The scheme does not protect money held in mutual funds, stocks and bonds, Exchange Traded Funds (ETFs), or cryptocurrencies.

You can verify whether a financial services provider in Canada is CDIC insured through the members list online.

The Financial Claims Scheme in Australia

The Australian Financial Claims Scheme (FCS) provides protection if you deposit money with banks, credit unions and building societies that are incorporated in Australia.

For each authorised deposit-taking institution (ADI), the scheme protects deposits up to $250,000 for each individual.

The FCS also covers claims of up to $5,000 from policyholders and claimants against general insurers in Australia, plus protection for claims above that, where eligible.

Get in touch

Our advisers provide specialist advice to British expats and international employees living around the world.

If you’d like to take control of your financial future and discuss ways you could better protect your hard-earned money, please get in touch. Email or call us on +44 1689 493455.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

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