Many savers will have noticed the rise in the number of challenger banks on the market in recent months, and while some are based in the UK, others are overseas. Although they'll have a similar level of financial protection to their UK-based counterparts, it's still worth making sure you understand where, and how, you're protected, and we're here to help!
Most banks seeking savings deposits from UK consumers have a UK banking licence, and deposits with them are covered by the UK Financial Services Compensation Scheme (FSCS) for up to £85,000 per person (although this will reduce to £75,000 per person from 1 January 2016).
However, European banks are also allowed to operate in the UK under their home country's regulations. This is what's known as "passporting".
The main differences affecting consumers is that these passporting banks are covered by their home country's compensation scheme (up to €100,000 per person), and not the UK's. As this limit is fixed in euros, fluctuating exchange rates mean that their cover in the UK could be less (or more) than that offered by the FSCS.
Also, should a European bank fail, compensation claims by UK customers will have to be made against the compensation scheme in that bank's country of origin, possibly in the language of that country, which may make it more difficult to resolve the issue.
Currently, the European registered banks operating in the UK under the passporting scheme are:
"With an increasing number of European banks now offering competitive rates, customers need to be aware that not all savings accounts offered in the UK are covered by the UK compensation scheme," said Rachel Thrussell, Savings Insight manager at Moneyfacts.
"However, savers can be reassured that, under European Law, savings with European banks are covered by the compensation scheme of the banks' home country, although they should bear in mind that in the event of a crisis, they could be faced with language and exchange rate issues."
Hopefully, it shouldn't pose too much cause for concern. Your money will still be protected under a regulated depositor scheme, albeit under a different scheme to the UK, with the main issues being the language and exchange rate differences. Nonetheless, given the rates on offer from these providers, they could still be worthy of consideration – check out our savings best buys for more details on the accounts available.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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