More protection for savers

Deposit protection box

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
* Inheritance
* 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.

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