Extra protection.

Savers to be protected up to £50,000

01-October-2008, Writes Hazel Cottrell hazel.cottrell@consumerchoices.co.uk

Under new plans, yet to be unveiled by the government, the deposit protection limit for savers could be increased from £35,000 to £50,000.

Savers could be guaranteed that at least £50,000 of their deposits will be refunded if their bank or building society collapses, according to the Guardian.

The report claims that the Financial Services Authority (FSA) (http://www.fsa.gov.uk/) will announce plans to raise the deposit protection limit from £35,000 to £50,000 to prevent another bank run. The paper also suggested that the normal three month consultation on altering the limit could be shortened due to the current crisis.

The FSA is to hold urgent talks with the City to discuss the change. The financial watchdog will argue that “at a time of market uncertainty it is important that deposits are properly protected. Raising the limit to £50,000 would be designed to further reassure customers.”

Speaking to the BBC yesterday, Gordon Brown said that he was prepared to do “whatever it takes” to protect the public’s savings, but did not offer an unlimited guarantee on savings, as has happened in Ireland.

He said: “Wherever there has been a problem we have intervened and dealt with it,” adding “I think people can see from our actions so far that depositors have been protected. No UK depositor has lost money.”

Many have argued that an increased guarantee is necessary to dissuade savers from removing money during the current crisis, but Chris Eagle, commercial manager at CreditChoices.co.uk can see a downside to the change.

He said of the plans: “Increasing the deposit protection limit would increase confidence in British savings. However, the current £35,000 limit already covers 96% of deposits - increasing it to £50,000 would only increase that figure by 2%. It is a relatively small minority of people who will benefit from this change, but if the compensation is funded by compulsory levies on banks, the cost could be passed on to the majority.”