The Bank of England will protect savings of up to a million pounds under the Financial Services Compensation Scheme. The increased rate of savings protection is expected to take effect from July 2015 onwards. Under the current system, protection of this kind only applied to savings up to a maximum level of £85,000.
The decision is intended to avoid a repeat of the situation that happened a few years ago when Northern Rock hit financial troubles. People rushed to the bank to withdraw their savings for fear of losing them, forming huge queues. Following the run on the bank, the situation was only saved when Northern Rock was temporarily nationalised in order to provide stability for savers until an improvement in the market came about.
The new measures are designed to protect those who receive a temporary and significant boost to their bank accounts, for example after selling a house or receiving an inheritance. Such temporary deposits will be protected for a period of up to six months, preventing people from finding their inheritance or the proceeds of their house sale are effectively endangered by bad timing. According to the Bank of England, the new protection limit of £1 million would be adequate for 92% of home sales in London and 99% nationwide. In the case of personal injury claim payouts, protection will be unlimited.
This huge increase to the protection limit is one of several measures that have been introduced to give better protection to savers. For example, if a provider of a pension or insurance policy should fail, 100% of annuity income will now be protected under the Financial Services Compensation Scheme rather than the previous 90%.
On top of this, if a bank is going bust, savers will be automatically transferred to a different account. The Prudential Regulation Authority (PRA) of the Bank of England plans to make the process of transferring accounts from a faltering bank to a stable one “seamless” and fast. The aim is for savers to be able to access their account with their new provider and begin withdrawing money within 24 hours. According to Andrew Baily, chief executive of the PRA, “These proposals will allow customers to have continuous access to the money in their bank account.”
Between the various measures being introduced, it is hoped that customers will benefit from deposits that are thoroughly protected and separated from the investment arms of their banks by the time 2019 starts.