Savers' protection increased to £50,000
British savers are now protected up to £50,000 if a British bank fails and this guarantee could be increased further still, the financial watchdog has announced today.
The Financial Services Authority (FSA) increased protection up from £35,000 in light of continuing banking uncertainty, as well as the Irish government recently upping its protection guarantee to 100%.
This increase applies from Tuesday 7 October 2008, and means customers with joint accounts will be eligible to claim up to £100,000.
Hector Sants, chief executive of the FSA, says: “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."
The change ties in with the introduction of the government’s Banking Bill in Parliament, which is due next week.
Sants adds: “In addition, the chancellor has made clear that the Authorities will do whatever is necessary to maintain financial stability and protect depositors.”
The FSA and the government are also looking at other measures, which they say will enhance “consumer confidence” in the banking sector. At the same time, both have stated that people do not need to worry about how safe their money is, as British banks are solvent.
Other potential changes to the protection limit include increasing the protection limit beyond £50,000, ensuring compensation payments could be paid-out quickly, and changing protection to per customer per brand, rather than per bank. You can find out more about the proposals here.
“It is good that this new limit is to be implemented so quickly," he adds. "The financial services market is changing rapidly and there is no room for ncertainty or lack of clarity for consumers."
The change means that 98% of savers are now protected by the FSCS, according to the British Bankers' Association. Previously this was 96%.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.
The Financial Services Compensation Scheme is the compensation fund of last resort for customers of authorised financial services firms. If a firm becomes insolvent or ceases trading, the FSCS may be able to pay compensation to its customers. Limits apply to how much compensation the FSCS is able to pay, and those limits vary between different types of financial products. However, to qualify for compensation, the firm you were dealing with must be authorised by the Financial Services Authority (FSA).
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.