Chancellor extends Financial Services Compensation Scheme

by Gill Montia

Story link: Chancellor extends Financial Services Compensation Scheme

The Chancellor of the Exchequer, Alistair Darling, has extended the Government’s scheme to protect savers with deposits in UK banks and building societies.

The Financial Services Compensation Scheme (FSCS) originally gave such savers a 100% guarantee for the first £2,000 of their savings, followed by a 90% guarantee on the next £33,000.

However, emergency measures were taken when Northern Rock came close to collapse and the bank’s existing customers had savings of up to £100,000 guaranteed by the Government.

The Treasury is now using its administrative powers to ensure that 100% of the first £35,000 of savings will be protected straight away and in the second stage of the reform process the Chancellor hopes to “separate savers’ money from the rest of a bank’s assets, so that savers’ money is as much protected as possible”.

The Chancellor refers to the extension of the FSCS as the first stage of a wider process to reform the system that protects UK bank and building society savers and it is anticipated that the £100,000 guarantee granted to Northern Rock savers will become a benchmark.

The reforms will be achieved through a process of consultation with the banking industry, followed by new legislation. The government will also study savings protection schemes around the world.

The new rules will apply only to customers of banks and building societies that default on or after 1 October 2007.