Greater protection for savers


Savers’ money will no longer be used to offset any debt held with the same institution should the banking crisis lead to the collapse of more firms, under new rules just announced.

Currently, the first £50,000 of savers’ money is covered by the Financial Services Compensation Scheme (FSCS) should a bank or building society flop. However, if they have any outstanding debt with the firm in question – such as an overdraft, a loan or mortgage – this will be subtracted from the money they can expect to receive.

So, someone with £20,000 of savings and £15,000 of debt with a bank would only receive compensation of £5,000 from the FSCS.

However, new rules just announced will see savings ring-fenced from any debt with the same firm. The new rules mean the customer's savings will be protected to the limit of £50,000 and not used to offset loans.

Hector Sants, chief executive of the Financial Services Authority (FSA), says the new rule will help underpin confidence in the banking system. From 31 December 2010 new 'faster payment rules' will mean savers and other depositors should receive any compensation within a target of seven days.

“The FSA, along with HM Treasury and Bank of England, have set the FSCS a challenging target of delivering payout in seven days,” Sants adds.

And from 1 January 2010, all banks and building societies will be required to inform customers about their protection under the FSCS and proactively inform them of any additional trading names under which they operate.

This is because the FSCS rules state individual savers are protected for 100% of the first £50,000 per bank – this poses a problem for many savers with more than one account in the same bank, or several accounts in banks owned by the same parent group.

For example, Abbey and Bradford & Bingley share the same FSA licence, which means they are considered as one bank under the FSCS rules.

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