Savings up to £1m to be protected next year

7th October 2014

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Savings of up to £1m are to be protected under proposals from the Bank of England aimed at preventing the scenes witnessed in 2007 when customers queued around the block to remove their cash from Northern Rock.

The boost to consumer protection, which is due to come into force in July next year, is designed to safeguard those who have large sums temporarily deposited in their account because of a house sale or a divorce settlement, for example.

Other  instances where the protection would apply include payouts from life insurance policies, divorce settlements, retirement or dismissal pay, compensation payments for criminal injuries or wrongful conviction.

The new limit would only apply to money deposited for a period of six months or less, in order to protect those with a temporarily high balance in their accounts, rather than wealthy people who have not split their savings between different banks.

Under the new enhanced protection scheme, customers would have to supply written evidence to prove that their high savings balances came from one of the above sources.

Currently £85,000 is protected by the Financial Services Compensation Scheme if a bank goes bust.

Customers with savings over the current protection limit have to spread these out between different institutions to ensure that all their money is safe, however, it can be extremely confusing when several different brands operate on the same banking licence.

The Bank of England also wants people to have continuous access to funds up to £85,000 if a bank goes bust, by transferring the account to a new institution immediately.

Currently compensation takes seven days or up to 20 for more complex cases.

Before Northern Rock’s collapse, the FSCS only protected 100% of the first £2,000 and 90% of the next £33,000.

This meant that many customers would have lost several thousand pounds if the Government hadn’t stepped in to guarantee all deposits.

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