£85k protection by government if a bank goes bust

[pensionsums]

What do people do if they have a lot more than £85k? Do they just make sure they have accounts with different banks, given that the protection is per institution?

Yes, different banks etc.

If they are lucky enough to have that worry I'm sure they know to spread it across the necessary number of banks

Don't forget that if a bank is part of a group (eg HSBC and first direct) then the protection will be split, so not 2 x £85k if you have accounts with both.

Different banks, premium bonds, property.

Some platforms spread the risk across banks. Trading 212 does this

Different banks, but also things like investments/stocks. If you have that much money you don't want it sat earning 4% unless you're about to need it for something.

Thanks this is interesting! So literally people have to have accounts with multiple banks , which is weird eh.

But at least your capital is not at risk though

You can put it all in one NS&I account. They don’t have the £85K limit.

Well no, not really. You wouldn't want all your money in one place. We have Cash ISAs with one bank. S&S with another. Our current accounts are separate again and we have Premium bonds. We move money / transfer ISAs to ensure we get the best returns that we can.
Edit to add, we also have a couple of regular saverson the go at any one time that we drip feed into. We check every year for the best rates for these.

Invest it. Investments go up and down in value, don't have the FSCS protection as when you buy an investment fund you should own a portion of the underlying stocks.

FSCS £85k protection is useful for cash accounts. Though do keep in mind that if lots of banks fail, then does the FSCS have the money to cover all the loses?

If you have a large amount of cash savings which you need to put somewhere on a temporary basis, then NS&I is useful as that has Treasury backing.

My bigger concern about UK banks is their IT systems. If IT systems fail then people don't have access to money as these days we are very reliant on card payments.

What? How come??

Can someone explain NS&I please? I have no idea what this is. Due to pension lump sum coming I need to figure this out . MN so helpful!!

You can, but the Interest rates aren't great so probably wouldn't be the best decision for amount of money.

NS&I is not a bank. It is you lending money to Government. Therefore the Treasury backs that, up to £2million per person.

www.nsandi.com/get-to-know-us/security/protect-your-money

That's not all all weird! Honestly, it's so normal, most people with savings will spread their money around.

It's basically the government's savings bank backed by the Treasury. You can invest up to a million but as @rainbowunicorn says, the interest rates aren't great:

https://www.nsandi.com/products

If you have more than £85K then you need to spread it across different banks, yes. You can check on here to make sure that all your accounts are covered:

https://www.fscs.org.uk/check/check-your-money-is-protected/

Sometimes banks with different names come under the same FRN (only £85K per FRN number is covered). So it's good to use the checker.

Joint accounts are covered for £85K per person. So you can have £170K covered for 2 people if they have a joint account.

Not really, it’s often better to spread money and only keep an emergency savings pool in a main bank, then have other savings spread across ISAs, investments and property. It would be unusual to have a large amount sat all in one bank account.

You say this is a pension lump sum? You need to think about what you want it for long term really. There are many ways to invest dependant on your tax rate etc (ISA returns are tax free, you pay tax on interest from savings accounts) that might work better for you.
If however you are just looking for somewhere short term while you think about what is next then yes, split it between accounts

Most high net worth individuals invest their money where it could lose value and there is no guarantees. In reality in developed countries banks rarely go bust or if they do, retail customers are bailed out by the government

Nsand I direct saver

Not weird at all and makes total sense. It's also worth being aware that there's extra temporary protection for 6/12 months not sure which, if you sell your house and another reason, possibly an inheritance. Also its per person so a couple could keep double the amount.

However you need to think about whether you really need so much in cash. A large house deposit would be one reason.

Otherwise you should be looking at investing. When you're putting money in, you keep a cash emergency fund of up to a year's outgoings and invest the rest.

When you're taking money out, ie drawing down a pension you need to look further ahead, eg 2 to 3 years but the principle is the same, keep most invested in different funds and withdraw from those, avoiding any that have performed poorly recently.

Investment money is outside the £85k system because you own shares in a company (in a convoluted way) and that can't be touched by anyone else.

No not weird at all to have multiple accounts. I manage our family finances and for a family of 4 we currently have around 25 accounts between us including Workplace pensions, SIPP, Cash ISA's, S&S ISA's, LISA's, JISA's, fixed term savings, easy access savings, current accounts and travel accounts. This is not just due to the 85k limit but due to making best use of the tax advantages, interest rates and currency conversion costs.

Different banks or premium bonds