Money Matters: What is the Financial Service Compensation Scheme?

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The Financial Services Compensation Scheme (FSCS) is a protection scheme which aims to pay compensation to eligible claimants if a firm is unable, or likely to be unable, to pay claims against it.

It was introduced by the Financial Services and Markets Act 2000 and came into force in December 2001.

The Financial Service Compensation Scheme (FSCS) covers deposits, investments, general and life insurance, and arranging and giving advice on mortgages.

Deposits: The FSCS provides cover for deposits up to £85,000 for each eligible claim per banking group. This increased from £50,000 on December 31, 2010 as a result of European Union Directive requirements.

Contracts of Insurance: The FSCS provides cover for long-term policies such as life assurance and pension policies of 90 per cent of the claim without limit. The new limit was introduced from January 1, 2010 to simplify the previous threshold of 100 per cent of the first £2000, followed by 90 per cent of the balance.

Compulsory insurance (e.g. car insurance): The FSCS provides cover at a 100 per cent without limit.

Investments: The FSCS provides cover of 100 per cent of the first £50,000 from January 1, 2010. This replaced the previous limit of which allowed up to £48,000 (100 per cent of the first £30,000 and 90 per cent of the next £20,000).

Mortgages: The FSCS provides cover up to £48,000 (100 per cent of the first £30,000 and 90 per cent of the next £20,000) for mortgages arranged on or after October 31, 2004, when mortgage business first become regulated by the FSA. Before this date, only mortgage products bought from firms who had signed up to a voluntary code had recourse to a complaints process. From January 1, 2010 the level of compensation became a flat level of 100 per cent of £50,000.

If you have savings and investments and want to ensure that you are adequately protected then please get in touch.