FSA protects £50k deposits
Friday, 3 October 2008 4:50 PM
The Financial services Authority (FSA) has guaranteed savers' first £50,000 of their deposits from bank failure.
Couples with joint accounts will have £100,000 protection.
The FSA today announced the changes to come into force from Tuesday to the Financial Services Compensation Scheme (FSCS).
In a press conference today the chancellor also said the Bank of England would pump another £42 billion into the economy.
With £50,000 protection around 97 per cent of all building society customers will be protected and 98 per cent of bank customers.
The move comes as the Irish government is offering 100 per cent coverage of savings - leading both Gordon Brown and Alistair Darling to complain to their Irish counterparts about distortions to competition.
The push from savers to find security for their cash has also led Northern Rock to close some accounts to new customers - as depositors looked for the 100 per cent guarantee offered by the UK government on the nationalised bank.
Hector Sants, FSA's chief executive officer, said: "There has been extensive debate about the compensation levels. In the interests of providing clarity over the minimum level for the long term we have now decided to implement the move to a £50,000 limit from Tuesday."
He added the move was also needed given the wave of mergers in the banking sector meaning some customers with accounts in separate firms found them falling under a single parent company and just one tranche of protection.
Peter Vicary-Smith, chief executive of consumer watchdog Which?, welcomed the move but called for further clarity.
"We think the scheme should offer even greater protection for depositors," he said.
"We want to see payouts per brand, not per institution and for people to be automatically covered for amounts over £50,000 to cover one-off events like the sale of a house or an insurance payout.
"We also want people who hold savings and debts with the same provider to receive gross payouts as current provisions would see their debts deducted from any money they receive."
Sean Gardner, director of MoneyExpert.com, urged savers to remain calm and not try to keep cash under the mattress.
"In the current climate it's easy to panic but the biggest risk for savers has to be giving up on banks and keeping all their money at home. It's important to remember that no major bank has gone bust and there are still some really competitive saving products available," he said.
"By acting in haste and withdrawing money, savers will not only be missing out on interest but they will also be missing out on the security that banks offer. There is a much greater risk of being burgled than a bank going bust."
Before the run on Northern Rock brought the bank to its knees, the FSCS covered only 100 per cent of the first £2,000 of savings and 90 per cent of the next £33,000.
This was raised to 100 per cent of £35,000 a year ago.
The FSCS will cover the first £50,000 saved with a particular bank. If you have two accounts in the same bank or two accounts in different subsidiaries of the same bank just one level of protection is provided.
If you have £50,000 in two separate banks and they both go bust, then you are completely protected to the tune of £100,000.
However, what is classed as separate institutions is far from clear.
Firms part of HBOS - Halifax, Bank of Scotland, Birmingham Midshires, Saga and the AA - only offer one compensation payout as it only has one authorisation, while Abbey and Alliance & Leicester are considered as two separate firms - despite both being owned by Banco Santander.
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