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The Benefits of FSCS Temporary High Balance Protection
For financial advisors who have clients with large cash holdings, you know there’s nothing more important than maximising the protection offered by the Financial Services Compensation Scheme (FSCS).
Put simply, if their money’s held in a UK regulated bank or building society, the first £85,000 is safe. Anything above this amount would be at risk should the bank, building society or credit union go bust.
But did you know there are some circumstances where more than £85,000 can be protected?
Thanks to a lesser-known measure called FSCS Temporary High Balance Protection, up to £1m in one institution is protected for a limited amount of time. However, there are strict rules around the type of funds that qualify for this extra cover.
Here, we reveal how this lesser-known measure works, what type of funds qualify, and how to make sure your clients’ temporary high balances are working as hard as possible.
What is temporary high balance protection?
If a client receives a large lump sum or windfall, they may be eligible for FSCS temporary high balance protection on deposits up to £1m. This means they’ll be fully compensated in the event the institution holding their money fails.
This extra cover is only available for a six-month period, giving you and your client time to decide what to do next with the funds.
While this may seem like a lifeline for cash-rich clients, it’s important to note only certain types of funds qualify for this additional protection.
Where can the funds come from?
The FSCS rules say pretty explicitly that to receive temporary high FSCS Temporary High Balance Protection, the cash must have come from a significant life event.
This includes:
- Selling your house
- Redundancy
- State benefit payout
- Insurance payout
- Divorce
- Inheritance
- Compensation for personal injury
- Compensation for wrongful conviction
- Proceeds from the estate of a deceased person
Do you need to apply for extra high balance protection?
No, the money will be automatically protected. However, if the institution holding the money fails, you might need to prove that your client’s cash was a temporary high balance. This could be in the form of a will, death certificate, property agreement, lawyer/insurer/mortgage provider letter, court order or social security statement.
What should you do with clients’ temporary high balances?
The importance of managing large amounts of cash for clients shouldn’t be underestimated. Yes, you want to make sure the money is spread out across institutions so that the FSCS temporary high balance limit isn’t breached, but you also want to make sure their funds are earning as much interest as possible.
In today’s high interest rate environment, competition among providers is improving and there are plenty of competitive deals around.
That’s where a cash management platform like Akoni comes in. Akoni uses Open Banking technology to enable fast and easy access to leading rates from 20 high street and challenger banks and building societies.
Akoni allows you to tick both boxes: maximise FSCS protection and secure top interest rates.
That’s exactly what an adviser, Martin, did for his clients.
Temporary high balance protection case study
Mr and Mrs G had £450,000 from the sale of their house. They hadn’t found anywhere to move to so needed to park their cash until they’d found their next property. They wanted the money to be fully protected, easily accessible but earning as much interest as possible.
Martin suggested transferring the funds onto Akoni. There, he selected a variety of products for them, ranging from instant access to 40-day notice accounts.
If they’d put all their cash with one provider, the FSCS Temporary High Balance provision would have protected it, but as they weren’t sure how long it would take to purchase their next property, Martin recommended diversifying the funds across different institutions for extra security.
A year later, they still hadn’t found their new home, but they’d earned £2,500 in interest.
Set up your Akoni account
If you have clients with large cash positions and you’re looking for an easy and secure way to view and manage their funds, set up your Akoni account now. The platform allows you to seamlessly deposit and monitor their cash savings and book better rates when they become available.
Alternatively, why not have your own branded cash and savings platform for your business with our white-label offering? Whatever the size of your firm, we can roll this out at no extra cost.
Get in touch to find out how Akoni can help better serve your clients and grow your business.