Michelle Monck

Michelle Monck

Consumer Finance Expert
Published: 21/08/2019

Savers looking to deposit up to £85,000 have the peace of mind that their savings are protected by the Financial Services Compensation Scheme (FSCS), but for those looking to save over this amount, ensuring their savings are protected becomes more complicated. To help these savers ensure their money is protected, Moneyfacts.co.uk has looked at how to invest over £85,000 to get the best returns while also being FSCS-protected.

How can savers ensure their money is protected?

Every bank and building society with a UK banking licence provides FSCS protection on their accounts up to a total of £85,000. What can catch savers out is that some banks operate multiple brands under one banking licence and the protection only applies to the banking licence. So, if funds are deposited with brands under the same FSCS cover, the funds are only protected across all of these up to £85.000. Savers can make sure their money is protected by saving any money in excess of £85,000 with a banking provider under a separate banking licence. For more information about which banks are covered under which licence, read out Depositor protection schemes guide. In addition to this, savers should be aware that any interest added that takes funds over the £85,000 limit is not protected.

Where to find the best returns and remain protected for balances over £85,000

For savers with over £85,000 and who want to ensure all their funds are protected by the FSCS, the only way to do this is to deposit the money into savings accounts held under different banking licences.

The best fixed rate bonds for over £85,000

Savers wanting to the get best savings rates will have to be prepared to lock their money into a long-term fixed rate bond, as these are currently offering the top savings rates overall. At the moment, the best interest rate for fixed term bonds is from Bank of London and the Middle East (BLME), which is offering an expected profit rate of 2.80% on the seven-year version of its Premier Deposit Account. BLME also offers the second-best rate overall on the five-year version of this account, which pays an expected profit rate of 2.75% – savers should be aware that any money over £85,000 deposited in these top two accounts won’t be protected. Instead, they could opt to put additional money into PCF Bank’s 7 Year Term Deposit Issue 10, which is paying 2.75% and is the third-best rate in the chart.

The best easy access accounts for over £85,000

Alternatively, savers prepared to sacrifice the best possible interest rates for the ability to access their funds more easily could choose to split their savings across multiple easy access savings accounts.

All the top-paying easy access accounts currently have low minimum balances, so there is plenty of choice. The top two currently with different banking licences both offer the top rate of 1.50%. Marcus by Goldman Sachs® offers this rate on its Online Savings Account, which also includes a 0.15% bonus for 12 months. Meanwhile, Virgin Money offers this rate on both its Double Take E-Saver Issue 10 and Man Utd Double Take E-Saver Issue 5, although savers should be aware that both these accounts have a withdrawal restriction of two per year including closure.

Taking interest into account

Savers depositing the maximum protected amount of £85,000 should also remember that any interest earned that takes funds over this amount will not be protected. As such, savers should keep this in mind when choosing savings accounts, especially long-term fixed rate bonds that offer the highest interest rates and which can easily push funds above the limit within a few years. Some providers only pay interest into a separate account, however if this account is also held with the same provider it will therefore still not be protected by the FSCS scheme. Other accounts only allow the interest to stay in the account, known as compound interest, or the option to pay away or have the interest compounded. Often, compounding the interest will result in more earned from the interest, however savers should ensure that interest earned is protected too, so may need to split funds between accounts with different providers to again keep within the £85,000 limit (taking into consideration the total amount of interest added).

How does compound interest work?

For example, a saver with £120,000 could choose to deposit £70,000 in Aldermore’s 5 Year Fixed Rate Account, which is currently offering a rate of 2.25% and ensuring the interest is left in the account each year will result in the saver earning an additional £8,237.44 in interest over the five-year period. The saver could then deposit the remaining £50,000 with Paragon Bank, which is currently offering 2.25% on its 5 Year Fixed Rate Savings Account and which would result in a total of £5,883.88 in interest being added over the five years. So, splitting the money between these accounts would result in a total of £14,121.32 being added over the five years while ensuring that all the money remained protected. Savers wanting to work out exactly how much they will earn through interest can easily do this by using our Lump Sum Savings Calculator.

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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