Page last updated at 18:13 GMT, Friday, 31 July 2009 19:13 UK

UK savers get 21bn compensation

Bradford & Bingly shop front
Bradford & Bingley was one of the biggest victims of the financial crisis

The cost of protecting UK savers during the credit crisis has been revealed by the body set up to compensate victims of banking collapses.

In its latest annual report, the Financial Services Compensation Scheme said it paid out £21bn in the six months after the onset of the crisis.

That compares with just £1bn in the seven years before the crisis.

The scheme reimburses up to £50,000 per saver if a bank goes under, paid for by the UK financial services industry.

Compensation limits

The report highlights five banks that were responsible for the majority of payouts: Bradford & Bingley; Landsbanki Islands' UK savings arm Icesave; Heritable Bank; Kaupthing Singer & Freidlander and London Scottish Bank.

The scheme said it had handled an "unprecedented" number of claims, compensating 3.5 million customers' accounts.

The FSCS also saw a threefold rise in enquiries over the full year - up from 73,000 to 234,000.

The FSCS charges a compulsory levy on the UK's financial services industry to cover compensation for savers.

The £50,000 limit is per saver, per institution, not per bank.

So, for example, if a saver had £50,000 with HSBC and £50,000 with First Direct, then only £50,000 of savings would be protected as HSBC and First Direct are different brands of the same institution.

New rules

Last week, the Financial Services Authority (FSA) announced that, from 2011, savers would be compensated faster for lost savings - within 20 days and preferably within a week.

At present, payouts for savers with failed banks can take up to six weeks.

The FSA also announced that, under the new rules, any debts owed by a saver to their bank could no longer be deducted from the £50,000 maximum compensation.

The changes to the compensation system come alongside a wider examination of the UK banking regulatory system in light of the financial crisis.

The government has, for example, proposed a new council to oversee financial stability to work alongside the current tripartite system that encompasses the Treasury, the Bank of England and the FSA.

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