Government protection for temporary high bank balances
Most people are aware that the government will protect up to £75,000 of funds held in a bank account if the bank collapses.
Up until the end of last year, the level of protection was £85,000, which was based on European guidelines for government protection of €100,000.
The level of protection was reduced to £75,000 in January due to changes in exchange rates.
It is not very well known, however, that since July 2015 temporary protection for much higher balances has also been provided for balances up to £1 million in certain circumstances.
Temporary protection (available for 6 months only) for balances up to £1 million is available to cover a number of situations including:
(i) Money which will be used to buy a main property;
(ii) Money received from the sale of a main property;
(iii) Proceeds received under an equity release scheme or insurance policy;
(iv) Compensation from a PI award;
(v) Compensation for unfair dismissal or redundancy;
(vi) Money received on marriage or divorce;
(vii) Money paid on retirement
(viii) Inheritance payments.
The purpose of the temporary protection is to allow the recipient sufficient time to open accounts and invest the money.
Compensation received from a personal injury award includes any damages received for an accident, medical negligence claim or criminal injuries. The protection for PI awards is unlimited in amount (but only for 6 months).
It is reassuring to know that some large sums have higher protection for six months.
However, it is also important to be aware of the need to invest the money in such as way that the funds are fully protected in the long term. This will either involve opening a number of different bank accounts to make use of the £75,000 protection for each account, or investing at National Savings & Investments where the government protection is set at £1 million.