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In a Nutshell... Compensation scheme available to GP savers

How GPs' savings accounts are protected if the scheme provider goes bust. James Cheetham explains.

Protected savings accounts: compensation rules can protect some savers
Protected savings accounts: compensation rules can protect some savers

A double dip recession is looking more likely, but if an account provider defaults, GPs can claim savings owed to them from a special scheme.

The Financial Services Compensation Scheme (FSCS) investigates claims against firms authorised and regulated by the Financial Services Authority (FSA) that are no longer trading.

Compensation limits
Beefed-up compensation rules have applied since 31 December 2010. Now if a bank or building society authorised by the FSA is unable to repay the deposits individuals have paid into it, the FSCS can pay the 'sterling equivalent' of EUR100,000 of each depositor's claim per authorised institution.

Joint accounts
The FSA set the sterling equivalent at £85,000 (£170,000 for joint accounts).

These sterling compensation amounts apply for five years. They are only subject to change if there are fluctuations in the sterling/euro exchange rate during this period.

Gross payout
An important change introduced last December was the move from 'net to gross' payouts: now the FSCS simply pays compensation based on the total value of all deposits held within the same institution.

  • Make sure institutions holding your savings accounts/deposits are FSA authorised and regulated.
  • Check your savings with such institutions do not exceed £85,000 (joint accounts, £170,000).
  • If you have an offset mortgage ensure it is not operated on a combined 'one account' basis.
  • Get advice - from an independent financial adviser, for example.

Offset mortgages
These strengthened rules are important to GPs with offset mortgages. In cases where the savings account and mortgage balance are separately identified, the FSCS would pay compensation on a gross basis up to £85,000.

However, if the savings account and mortgage account were combined and operated as one large overdraft, the FSCS would treat the account as an overdraft facility. In that situation compensation would not be paid. Other deposits in other accounts within the same institution would, however, be eligible for compensation on a gross basis.

Other financial products
The maximum compensation for stock market investments such as shares is £50,000. For mortgages and mortgage advice, it is £50,000 per person per firm. With insurance claims, you can get 90% of the claim with no upper limit. If the insurance is compulsory, you can get 100% of the claim's value in compensation.

  • James Cheetham is a financial planner and director of specialist medical independent financial advisers Bailey Beaumont Financial Solutions, www.baileybeaumont.co.uk

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