The savings protection threshold is raised again

October 4th, 2008

In some good news for savers with large deposits, the Financial Services Authority (FSA) has raised the limit to the amount of deposits that are guaranteed should a bank go bust to £50,000. Previously, only the first £35,000 of deposits were protected.

The new limit will come into effect this Tuesday, the 7^th October.

The FSA will also consider whether the limit should be raised even higher. The increase means 98% of account holders would have all their savings protected.

Also, the new UK limit is for each customer so joint accounts will be guaranteed up to £100,000.

Earlier this week, Ireland introduced an unlimited guarantee covering bank deposits. Banks in the UK have been concerned that savers would move their money to Ireland to take advantage of the 100% protection.

Payments will continue to be made through the Financial Services Compensation Scheme (FSCS) and the FSA has said that it is to look into reforms that will allow compensation to be paid faster.

The FSCS covers all UK banks, building societies and credit unions. Banks from outside Europe also contribute to the scheme and so their depositors are also protected.

European banks are usually covered by their own schemes but customers may be covered for only 20,000 euros (£15,600). The FSA is also to consider whether accounts with different banks that are owned by the same parent company should be covered.

At the moment, customers are only covered for one account under each banking licence so if you have two accounts with banks that are owned by the same parent company you will only have a total of £50,000 guaranteed.

Some will see this move as unnecessary intervention in the free market that will distort the banking market. Others, especially those with large savings that are now protected, will see it as a welcome relief in these turbulent times.

The real test will come in further legislation regulating the banking industry that currently has left and right wing commentators in bitter debate about how much intervention in the market is too much intervention.

Posted in Personal Loans | No Comments »

Newer Entries »