Increase in deposit protection planned by government

According to a recent report the government is hoping to provide the nation’s savers with increased security and peace of mind by increasing protection on deposits that are made into financial institutions. Until last summer only a couple of thousand pounds of consumers’ savings benefited from the government’s 100% guarantee. However, after the Northern Rick crisis, where savers withdrew billions of pounds worth of savings amidst fears that the bank was on the verge of collapse, the government raised this 100% deposit to the first £35,000.

Recent reports suggest that the government is now looking to raise this protection level again, this time to the first £50,000 of savings, which is good news for savers that have a tidy sum in their savings accounts. There is also good news for banks, as the government has said that they will not need to pay any upfront funds onto a deposit protection scheme, which many will be relieved about given the financial struggles that most banks are facing.

Treasury officials stated that the Financial Services Authority is currently looking into the proposals, stating: “The Financial Services Authority (FSA) will explore with the financial sector ways for customers to cover amounts above the compensation limit and the appropriate coverage for client accounts and similar arrangements.”

The British Banker’s Association was pleased that no upfront payments would be needed from the banks, stating that no prefunding was needed. One BBA official said: “What we want is a system that works, that intervenes quickly, that frees deposits when necessary and has the ability to top up as and when required. None of that requires a pre-fund.”

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