Compensation for savers increases from £50,000 to £85,000
The Financial Services Compensation Scheme (FSCS), the body established to compensate victims of banking failures, will now reimburse up to £85,000 per saver if a bank collapses, up from the £50,000 limit previously agreed.
It is hoped the new limit, which is paid for by the UK financial services industry, will avert customer panic if a bank is close to collapse.
The new limit, which came into effect on 31 December 2010, will cover the “vast majority” of UK savers, according to the Financial Services Authority (FSA).
At the onset of the credit crunch in the summer of 2007, the maximum payout for savers was £31,700 per person, made up of 100% of the first £2,000 and then 90% of their next £33,000.
However, following the collapse of Northern Rock shortly after, the Government stepped in to announce a 100% guarantee for all savers’ money in the lender.
In October 2007, the limit was lifted to £35,000 and then to £50,000 a year later.
The Government hopes the new limit will be enough to stop another run on a bank, like the one at Northern Rock.
Commenting, Sheila Nicoll, director of conduct policy at the FSA said: “The need to maintain customer confidence in the banking system is one of the key lessons from the financial crisis.”
Ms Nicoll added that the FSCS will “begin a publicity campaign in the New Year to inform customers of the compensation limits and of the importance of ensuring that they are covered, and by which national scheme.”