The compensation limit for savers who lose money when a bank goes under is being increased from £35,000 to £50,000.
The Financial Services Authority (FSA) said the Financial Services Compensation Scheme would also pay out up to £100,000 to couples with a joint account who lost money when a bank failed. The new limit will come into force next Tuesday. Which? has more advice on protecting your savings.
The Government has been coming under increasing pressure to raise the limit this week after the Irish Government announced on Monday that it would guarantee all savings deposits held with an Irish institution for two years.
Irish banks government guarantee
The move is believed to have sparked a flood of British money into Irish banks.
There has also been a rush among savers to put their money with institutions that have a Government guarantee or that are perceived to be strong.
Nationalised group Northern Rock withdrew some of its savings products on Thursday after seeing inflows of cash in an attempt not to fall foul of its competitive commitments relating to its state ownership.
£50,000 savings compensation
There have also been reports of savers flocking to banks such as Lloyds TSB and Abbey, which is owned by Spanish giant Santander, as well as to the Treasury-backed National Savings and Investments.
The FSA says it will now consider whether the new £50,000 compensation limit should apply to each legal banking entity, each banking brand or even each individual account.
More savings protection needed
Which? chief executive Peter Vicary-Smith said: ‘With the current financial crisis we’re pleased to see the FSA has taken timely action to ease consumers’ concerns. However, we think the scheme should offer even greater protection for depositors.
‘We want to see pay-outs per brand, not per institution and for people to be automatically covered for amounts over £50,000 to cover one-off events like the sale of a house or an insurance pay-out.
‘We also want people who hold savings and debts with the same provider to receive gross payouts as current provisions would see their debts deducted from any money they receive.’