Cyprus has become the fifth Eurozone member to be saved from bankruptcy by the European Union, coming after deals for Ireland, Spain, Portugal and neighbouring Greece.
Cyprus' fall has been of a direct consequence of the collapse of neighbouring Greece. The small island had become a haven in recent years for foreigners looking to have their money sitting in a healthy offshore account, and with Cyprus' banks buckling with all these additional deposits, they decided (foolishly) to invest in Greece.
The temptation to invest in such a location, despite the locality and cultural connection, was Greece's high interest rates; but what the Cypriot banks ignored was the reason for such good numbers: the country was on the verge of financial ruin. As a result, Cyprus has now lost billions in Greek bonds
The subsequent bailout for Cyprus is different in the way that this will be the first time that savers will be affected by the fallout. Not only will this have noticeable effects on native savers, but also those in the UK and British expats.
In return for their new controls on saving money (certain amounts to be charged certain percentages), Cyprus will receive a 10 billion injection of money, and it would have been more if there wasn't an estimated 37 per cent of money in Cypriot banks that didn't belong to foreigners.
Some of that 37 per cent belongs to UK individuals, and as of this moment, compensation measures are only set up for around 5,000 personnel in the Armed Forces by the British government. It seems that unlike in the financial crisis' worst point in 2008, when the government assured UK savers that their money was safe in foreign banks, there has been no such notion this time and up to 60,000 expats are likely to lose money as a result of the fallout in Cyprus.
The UK's Financial Services Compensation Scheme (FSCS) initially set the maximum compensation limit at £30,000 back in 2008 and since then it has risen twice, first to £50,000 and then after an overhaul in 2011, this has now been fixed at £85,000 until 2016. The FSCS insist that this would help protect 95 per cent of UK national's savings.
This compensation works per person, per bank; therefore you have £85,000 worth of money savings with HSBC and another £85,000 with NatWest, all of your money will be protected. In some cases, however, you'll have to look into the licenses your bank(s) operate on; for example, the Lloyds Banking Group operate under two licenses one for Lloyds TSB and a second for Bank of Scotland.
There are several providers under the Bank of Scotland that include Halifax, Saga and BM Savings; so if you had savings in each, no matter the amount, the maximum you could get in compensation is £85,000 because they all operate under the same license. Joint accounts, meanwhile, can claim a maximum of £170,000.
In regards to the Bank of Cyprus and its affiliation with the UK, they have had a division in Britain for the last 50 years and has 50,000 savers in the British Isles with deposits of around £900 million. Thankfully, British savings with the Bank of Cyprus is now under the FSCS scheme after removing itself of the Cypriot equivalent last June.
A spokesman for the bank said: "While the measures agreed include an upfront one-off stability levy on deposits in Cyprus, there is no effect on deposits with Bank of Cyprus UK Limited, which is a UK bank.
"Bank of Cyprus UK Limited is a separately capitalised UK incorporated bank, is subject to UK financial regulation, and eligible depositors are protected by the UK's Financial Services Compensation Scheme."
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