More protection for savers
People whose bank balances exceed £50,000 could be offered additional protection up to £500,000 in the event of a UK bank collapsing.
The Financial Services Authority (FSA) is currently investigating whether the compensation scheme should be extended to take into account people whose balances exceed the current limit of £50,000 for a temporary period, perhaps because of a house sale, receiving an inheritance or a pension lump sum - or even a redundancy payout.
The Financial Services Compensation Scheme (FSCS) guarantees to refund the first £50,000 per customer per bank in the event that a bank fails. However, thus far, savers hit by the collapse of several banks have all received 100% of their money back regardless of their balances.
The FSA says the EU Deposit Guarantee Schemes Directive provides it with more scope to amend the current protection limit. Thomas Huertas, director of banking sector at the FSA, says the FSA is aware that some bank customers occasionally have balances far in excess of £50,000 at a single institution.
“We are proposing that such transactional temporary high balances should have additional FSCS protection,” he adds. “Our proposals will protect people who have little or no choice about holding a high balance for a limited period over the current FSCS limit of £50,000 before they can diversify it, if they wish, between different institutions.”
The FSA proposes this "limited period" to be set at six months. Huertas adds that the changes to the FSCS are not intended to protect consumers who keep high account balances for a long period.
The FSA has proposed several scenarios where additional FSCS protection up to £500,000 for six months could be considered. These are:
* The sale of a primary residence and property bought for dependent relatives, for use as their primary residence
* Pension lump sums
* Divorce settlements
* Redundancy payments
* Proceeds of pure protection contracts
However, the FSA is proposing unlimited additional protection for people awards court and out-of-court settlements for personal injury claims.
The time limit would also be extended to 18 months to reflect the fact that personal injury awards and settlements are often intended to provide an income for the rest of the injured person’s life.
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 more usually a feature of car insurance but it can also crop up in contents, mobile phone and pet insurance policies. An excess is the amount of money you have to pay before the insurance company starts paying out. The excess makes up the first part of a claim, so if your excess is £100 and your claim is for £500, you would pay the first £100 and the insurer the remaining £400. Many online insures let you set your own excess, but the lower the excess, the more expensive the premium will be.