Mutual savers retain extra cover

Merged building societies can keep, for the time being, double the normal level of saver protection against insolvency.

The Financial Services Authority (FSA) has made a temporary change to the rules lasting until September 2009.

The aim is to reassure savers in merged societies who might have moved their money, simply to stay below the current £50,000 compensation ceiling.

Merged societies will have to continue using the name of the dissolved partner to benefit from the new rule.

"The exception we are introducing today to our compensation rules will allow a society which merges with another, and which continues to operate under its former name, to continue to have separate Financial Services Compensation Scheme (FSCS) deposit limits for the pre-merger account holders of the business," said Jon Pain of the FSA.

"Following mergers this will help existing savers with the societies who want to keep below the deposit protection limit and also reduce withdrawals from the successor society driven purely by compensation considerations on the part of savers."

The change was welcomed as "sensible" by the Building Societies ' Association (BSA).

"It would not be appropriate that moves designed to reassure and protect members, such as the mergers currently underway, ultimately result in a reduction in the levels of FSCS protection for members with savings in both societies," said director general Adrian Coles.

"Where a saver has accounts with two merging societies - and both brand names are retained - they will be protected at £50,000 per brand.

"For joint accounts this will be £100,000 per brand," he added.

New rule

The credit crunch and subsequent losses recently have pushed several small societies into mergers.

The Nationwide, which is taking over the Derbyshire and the Cheshire, said it would take advantage of the new rule.

"This means that existing individual customers of the three societies could have protection for a total of £150,000 - with £50,000 invested in each of the societies," the society said.

"For depositors with joint accounts these limits are doubled giving cover of up to £300,000 for joint account holders with savings in all three societies," it added.

More recently announced takeovers - of the Barnsley by the Yorkshire and the Scarborough by the Skipton - will qualify too.

More changes ahead

The FSA said it would be up to any merged societies to decide if they wanted to take advantage of the temporary rule change.

And any individual saver would only benefit from the extra insolvency protection if they had been savers with both of the societies before they merged.

The FSA is planning to consult in the New Year on further changes to the level of cover offered by the FSCS.

The main issue is whether or not protection should apply to individual bank accounts, a single banking brand name or a wider banking group, and whether current compensation limits should be even higher.