Set up in 2001 to provide compensation for authorised financial institutions in the event of being unable to pay claims against them, the FSCS has now been in operation for 13 years. Once a much needed precaution, a recent Populus survey commissioned by RateSetter has claimed that the FSCS is losing its relevance in the modern financial landscape.
Of those who are aware of the FSCS, one in five (22%) say they would not be worried if it ended, and a further two in ten (18%) agreed that new regulation to prevent the collapse of banks means that the scheme is less relevant than before. Just 17% of consumers believe a low rate of interest on their savings is a fair price to pay for the protection afforded by the FSCS. Significantly, over half (52%) of people disagree, showing that consumers are tired of getting a poor deal and are ready for a new breed of finance which can provide a level of protection whilst also giving them a much greater return on their investment.
The survey has also exposed a general lack of awareness of the FSCS amongst the British public, what it provides or how it works. Despite numerous multi-million pound celebrity endorsed campaigns, of the 2013 people surveyed, under half (47%) claim to be aware of the scheme. Only four in ten (39%) of those who were aware of the FSCS correctly identified the £85,000 of individual cover it provides, with one in ten (11%) over-estimating how much of their money is protected. When asked how much they felt the Scheme should protect, the vast majority (71%) stated that it should be unlimited, and the average based on all responses was £115,137 – a figure 35% higher than the current level of protection.
According to RateSetter, whilst the FSCS does protect deposits against the diminishing spectre of banking collapse, it does nothing to protect the very real erosion of consumer money at below inflation interest rates. Worryingly, one in seven people (15%) who are aware of the FSCS, mistakenly say that it protects their money against the pressures of inflation. This is perhaps not surprising when nearly four in ten (37%) say they find the rules around the scheme confusing.
Rhydian Lewis, Co-Founder and CEO, RateSetter, commented:
“Whilst the FSCS has been important for traditional financial institutions over the last decade, our findings tell us it is no longer fit for purpose. It is for this reason that its one size fits all approach has not been adopted by the burgeoning P2P industry. Instead, unique processes to protect customer’s money have been put in place by the key players in the market.
“By creating bespoke solutions for the industry, we have tried to ensure that our lenders are as protected as possible whilst allowing them to enjoy greater returns of up to 6%. Whilst we continue to strive to diminish the risk of P2P finance, it is paramount that the FSCS also takes heed of changing consumer sentiment and reacts accordingly.
“For too long consumers have suffered stagnant rates and with an upturn in the economy, the Scheme should work to become more efficient and allow a better deal for people’s hard earned money.”
