UK - What are the safest options to keep more than the FSCS limit in a bank/investment company?

Question

The Financial Services Compensation Scheme (FSCS) can compensate you if you have money in a bank/investment/pension/insurance/etc firm that has failed and is part of the scheme. For example, as of today, you should be covered for up to £85,000 for banks or investment companies.

If you want to keep more than the limit in a bank or an investment company, is there any safe way to do so? Is it recommended to start putting your money into a different company once you reach the protected limit? Are there any other options?

The reason I'm asking is that with investment companies, for instance, many times you get much better rates as the amount you invest increase, benefit that you'd lose if you start putting your money elsewhere.

Answer 1

It's useful to be aware that NS&I (National Savings and Investments) has no limit on protection. It's basically a state-owned savings bank and therefore in theory as low-risk (with regard to default) as government issued bonds ("gilts" in the UK) which are generally considered the "minimum risk asset".

NS&I's website doesn't seem to go into any detail on this anywhere I could find other than a statement that

We're 100% secure

We're backed by HM Treasury. So all the money you invest with us is 100% secure. Always.

on their "Why save with us?" page.

The main downside is that the interest rates available are - as for government bonds - terrible.

Moneysupermarket has a couple of relevant articles:

An NS&I guide including this:

One of the main reasons for NS&I’s popularity is that it is backed by the government, which provides savers with peace of mind that 100% of their money is protected.

Savings held with other providers are protected up to a maximum of £85,000 (as of January 2017) per person (and per banking institution) thanks to the Financial Services Compensation Scheme (FSCS), whereas with NS&I there is no upper limit.

And another one on savings protection generally with:

Savings invested with National Savings and Investments (NS&I) are protected in full as NS&I is backed by the government. That means if you have £250,000 invested there, it will be protected, so you don’t have to restrict the amount you save to £85,000.

However, it’s worth noting that NS&I’s accounts don’t tend to pay the most competitive returns, so stashing all your savings there just because of the protection offered is unlikely to be a sensible strategy.

Answer 2

If you hold a joint account with another person, the limit would be double, as the limit applies per person. There is also a higher limit for temporary balances following a life event (such as following a house sale).

Please be aware that the limit is per person, not per account, so there is no way around it by having multiple accounts. The limit is also per banking licence, not brand, so if you had savings accounts with both Halifax and Bank of Scotland, they share a licence and so the balances would be aggregated for the purposes of FSCS protection.

Reputable, regulated investment companies should put funds/investments in a ring-fenced client account, so that if they go bust, your investment is protected. However, note that you have no protection against the investment itself losing value, such as in the recent high-profile case of the Woodford fund.

Answer 3

Clearly no, you are not covered for any amount in excess of the £85k. Any excess is as safe as the bank. It's up to you whether this is an acceptable risk to take for better rates.

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Note: I have done no research into investments, or investment companies, but I don't think they are covered by the FSCS scheme. Please verify for yourself whether or not your money would be protected before making any investment decision.