Bank accounts

Bank accounts: expected deposit compensation scheme changes

The Financial Services Compensation Scheme (FSCS) currently covers 100% of the first £50,000 of retail deposits with UK banks. During the depths of the credit crisis the Government gave individual depositors de facto unlimited protection, witness the rescues of savers in Bradford & Bingley and Icesave, among others. This treatment was never formalised and it is now unlikely that Mr Osborne would repeat Mr Darling’s generosity were a bank or building society to fail.

However, there is change afoot on the deposit protection front. New European legislation means that minimum EU deposit cover will rise to €100,000 from 31 December 2010. The Financial Services Authority will be consulting shortly on how to put this change into practice. At current exchange rates, the compensation limit should rise to around £90,000.

As now, the improved limit will apply per banking license, not per banking institution. This means that a bank which has several deposit-taking brands but one banking license only offers you one slice of total cover.

There are no changes planned to other FSCS compensation limits or rules (see current table below).

FSCS Compensation Limits 2010
Product Maximum compensation
Deposit accounts £50,000 per person per licensed bank.
Investments (eg unit trusts) £50,000 per person per Investment firm.
Long_term insurance (including investment bonds) 90% of the claim without limit.
General insurance 90% of the claim without limit. Compulsory insurance is protected in full.
Home finance (mortgages) £50,000 per person per firm.

If you want to sidestep the issue of deposit compensation, your only real option is National Savings & Investments. However, it was so successful in raising funds earlier this year that it now only offers a limited range of uncompetitive variable rate products.

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