Page last updated at 11:58 GMT, Friday, 24 July 2009 12:58 UK

Safety of savings to be tightened

Piggy bank
Changes will be made to the scheme by the end of 2010

Savers will be compensated faster for lost savings if a bank, building society or credit union goes bust, the City watchdog has announced.

The Financial Services Compensation Scheme protects up to £50,000 per saver per institution if a bank goes under.

Now the Financial Services Authority (FSA) has announced that from 2011, compensation will be paid within 20 days, or preferably within a week.

The banking crisis prompted many savers to spread their funds for safety.

Since queues formed outside Northern Rock branches in 2007, the rules about deposit protection have come under scrutiny.

The Financial Services Compensation Scheme (FSCS) charges a compulsory levy on the UK's financial services industry that would cover compensation for savers if a UK bank were to go bust.

Tough test

The compensation scheme has been tested following the collapse of high-profile banks such as Icesave.

To help underpin confidence in our banking system, individuals and small businesses must feel confident that their money is well protected
Hector Sants, FSA

At present, payouts for savers with failed banks can take up to six weeks. The new rules would mean that individuals and small businesses would receive compensation within a target of seven days and all payments within 20 days.

Current rules mean a bank customer or small business owner who had a debt with a bank, such as a loan, as well as savings could currently have the amount of debt deducted from any compensation for savings if the bank went bust.

Under the new rules, to come into force on 31 December 2010, savings would be protected to the £50,000 limit and would not be used to offset loans.

"To help underpin confidence in our banking system, individuals and small businesses must feel confident that their money is well protected," said Hector Sants, chief executive of the FSA.

Spread savings

Savers have been keen to keep up with the rules to ensure all their money is protected if a bank, building society or credit union fails.

At present, if you have up to £50,000 with different authorised institutions, then all your money is safe.

For example, you have £50,000 saved with Barclays and £50,000 with HSBC Bank, all of this would be protected as the rules stipulate cover for deposits per customer and per institution.

However, if you have £50,000 in accounts with two different brands (in the same block in the final column on the table below) with the same authorised institution, then only £50,000 is covered. This is because they are authorised with the regulator under one named institution.

For example, if you have £50,000 with HSBC and £50,000 with First Direct, then only £50,000 of your savings are in the safety net. The same would be true if you have £50,000 with the Halifax and £50,000 with Birmingham Midshires.

Under the new rules, institutions will have to make clear which trading names come under which authorisation.

Source: FSA
* Unlimited protection until 24 May
HSBC BankHSBC, First Direct
HSBC Private Bank UK LtdHSBC Private Bank UK Ltd
HFC BankHFC Bank
Marks & Spencer Financial ServicesMarks & Spencer Financial Services
HSBC Trust CompanyHSBC Trust Company
BarclaysBarclays Bank
Standard Life plcStandard Life Bank
Barclays Bank Trust CompanyBarclays Bank Trust Company
Royal Bank of ScotlandRoyal Bank of Scotland, Direct Line (savings), Child & Co, Drummonds, The One Account, Lombard, Holt's
NatWest BankNatWest Bank
Coutts and CoCoutts and Co
Ulster BankUlster Bank
Adam & CompanyAdam and Company
Lloyds TSB BankLloyds TSB, Cheltenham and Gloucester Savings
Bank of Scotland (HBOS)Halifax, Bank of Scotland, Bank of Scotland Private Banking, Birmingham Midshires, Saga, Intelligent Finance, Capital Bank, St James's Place Bank
Scottish Widows BankScottish Widows Bank
Lloyds TSB ScotlandLloyds TSB Scotland
AMC BankAMC Bank
Lloyds TSB Private BankingLloyds TSB Private Banking
SantanderSantander, Cahoot
Abbey National Treasury Services plcAbbey National Treasury Services
Alliance & LeicesterAlliance & Leicester, Alliance & Leicester Commercial Bank, Moneyback, Honeycomb
Cater AllenCater Allen
Clydesdale Bank Clydesdale Bank, Yorkshire Bank
AIB Group (UK) AIB Group (UK), AIB (GB), First Trust
Co-operative BankCo-operative Bank, Smile, Britannia
Unity Trust BankUnity Trust Bank
Northern Rock Northern Rock
Dunbar Bank Dunbar Bank
Nationwide Building Society Nationwide, Derbyshire Building Society, Cheshire Building Society, Dunfermline Building Society
Citibank International plcCitibank International
Citibank NACitibank
Egg Banking plcEgg
Skipton Building SocietySkipton Building Society, Scarborough Building Society
Tesco Personal FinanceTesco Personal Finance, Tesco Bank, Tesco Banking and Insurance
Yorkshire Building SocietyBarnsley Building Society, Yorkshire Building Society

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