FSCS compensation is paid out in the event a bank or building society goes bust and is unable to return some, or all, of savers' money. It covers savings up to a set limit and applies per person per institution.
So if you have a joint account your overall cover will rise from £100,000 to £170,000. But if you have several accounts with the same institution then the £85,000 compensation applies to all those accounts combined, not per account.
Why is it changing?
For once the bureaucrats in Brussels have done us a favour. New EU legislation called the 'European Deposit Guarantee Scheme' has been introduced to harmonise protection for savers across all EU states. The compensation limit is €100,000, which the FSCS has converted to £85,000.
Any other changes?
Yes. If you're entitled to a payout the FSCS will try to make it within 7 days and in any case within the 20 days stipulated by the new rules. Note: this is from the date the bank or building society is declared in default.
And if you also have loans with the same institution they will no longer be deducted from any compensation payable. This doesn't mean you won't still owe the money, but it'll be treated separately.
Who's covered by FSCS compensation?
All private individuals and companies (excluding financial companies and public authorities).
Are foreign banks covered?
It depends. Provided the bank is regulated by the FSA and a member of the FSCS then you'll enjoy the same level of protection as a UK bank account - examples include ICICI and State Bank of India.
If the foreign bank is operating the account under the European Economic Area (EEA) 'Passport' scheme then you're covered by the compensation scheme in the bank's home country. If the foreign cover is lower than the FSCS level then the FSCS will make up the shortfall - although when the new €100,000/£85,000 limit takes affect then compensation limits should be the same across the EU. Examples include Anglo Irish Bank and Triodos Bank.
Otherwise you're simply covered by any compensation that might be available in the bank's home country.
What if 2 or more banks/building societies are owned by the same institution?
If you have accounts with banks or building societies owned by another institution then you're only covered by one lot of compensation for all those accounts combined.
For example, if you have £50,000 with Bank A and the same again with Bank B then you'll be fully covered if the banks are owned independently. But suppose Bank C owns banks A and B then you're only covered up to £50,000 in total (£85,000 from 31 December 2010), leaving £50,000 (£15,000 from 31/12/10) unprotected.
You can view a list of popular banks/building societies that count as one institution on our savings page (click the heading towards the bottom of that page).