Savers to get extra protection

Published:: 30 September 2008
Topic:: News,Money,Savings

The Government has announced an increase to the level of protection savers will receive if a bank or building society collapses. The limit is set to rise from £35,000 to £50,000 as politicians and the banking industry seek to reassure worried savers and restore stability to the sector.

For the time being, the protection UK savers have remains at £35,000 but the new limit is expected to be revealed next week when parliament returns.

The decision by the Government to take action at this time follows a legislature change by its Irish counterpart - retail deposits held with Irish institutions are now totally protected by the country's compensation scheme. And some analysts believe the reason why the Prime Minister, Gordon Brown, has chosen to act now is because he was worried that savers would pull huge sums of money out of UK banks and reinvest it with Irish providers, which could further destabilise the situation here in the UK.

Kevin Mountford, head of banking at moneysupermarket.com, said: "The announcement by Gordon Brown that the UK compensation limit for savings will increase from £35,000 to £50,000 is a case of better late than never. The Irish Government's initiative to stand behind 100% of savings deposited with Irish banks is likely to have spurred the UK Government into action. If it hadn't acted now we'd have seen a flood of UK savings into Irish accounts - with banks such as Allied Irish and Anglo Irish already offering attractive rates to UK savers.

"The proposed new £50,000 UK Financial Services Compensation Scheme (FSCS) limit should be enough to stem this flow, especially as doubts remain as to whether the Irish Government could actually fund its guarantee if it were required to."

For the majority of UK savers, a £50,000 protection cap will be perfectly adequate. However, if you have more in savings than that you should spread your money around between different institutions to ensure it is all protected. For more information about this read our articles 'How to keep your savings safe', 'Who owns who' and 'Where to invest your savings'.