3rd July 2015
Savers will receive £10,000 less compensation if their bank or building society goes bust.
From 1 January 2016, the limit for the Financial Services Compensation Scheme (FSCS) limit will be reduced from £85,000 to £75,000. This means if a person has more than £75,000 with one bank and the bank goes bust, they will only be entitled to claim for the first £75,000.
The new rules are being directed by Europe, which sets the limit at €100,000 across the whole of the European Union. Due to the slump in the euro, the Bank has had to adjust the limit in sterling accordingly.
The Treasury said the changes should be implemented today but it is postponing until January to allow the public to move their money around.
‘People have six months to get ready for the change, if necessary,’ said Mark Neale, chief executive of the FSCS, adding that 95% of people will still be protected.
The limit will be revised again in five years.
Danny Cox, chartered financial planner at Hargreaves Lansdown, criticised the plan to reduce the compensation limit.
‘This is absolutely bonkers. Savers are already suffering rock bottom interest rates, and now to add insult to injury the safety of that cash is being undermined,’ he said. ‘The popularity of both NS&I pensioner bonds and premium bonds demonstrates savers care as much about safety as they do about rates. Savers need to have the comfort of knowing they are protected in the event of a bank or building society collapse and a weakening of the statutory protections is unhelpful to say the least.’
Another change made to compensation limit is to allow savers whose bank balances are temporarily high die to the sale of a house or inheritance, will be covered up to £1 million for six months from the date the money was transferred, or when they become entitled to the money – whichever is later.
This means savers are protected when large sums are transferred resulting from specific events.