The Financial Services Authority (FSA) today announced new rules instructing banks and building societies to display depositor compensation arrangements.
Boost to compensation coverage
The FSA will require all banks, building societies and credit unions to prominently display posters and stickers in branches and on websites explaining which deposit guarantee scheme applies to their customers’ deposits. These rules will take effect from 31 August this year.
If customers are using the UK branch of a foreign bank from the European Economic Area, (EEA), the posters will have to set out that those customers are not covered by the UK’s Financial Services Compensation Scheme (FSCS). In this case, they would have to specify which national scheme will provide protection.
People unclear how their savings are protected
FSA director of UK banks and building societies Andrew Bailey said: ‘Customers need to feel confident about their money and to do this they need to know what the compensation limits are and which scheme would provide cover in the event of a bank, building society or credit union failure.
‘Too many people assume that because their branch is located on a local high street in the UK, they are covered by the FSCS. This is not true for UK branches of EEA banks where the home country’s deposit guarantee scheme applies.
‘Banks, building societies and credit unions will have to display these compensation stickers or posters in the branch window along with a sticker at the cashier’s window or desk and a further poster in a prominent position inside.’
Which? guide to savings protection
Which? analyst Paul Davies added: ‘We’re pleased to see that financial organisations will have to display their arrangements under the FSCS or an alternative national compensation scheme prominently. Since the Icesave collapse in 2008, consumers have been alerted to the need to make sure their savings are protected and the latest measures should help.
‘The Which? guide to protecting your savings outlines the current limits and arrangements under the FSCS. The guide also details who owns who in the savings market so that you can see if your limit is dictated by brand or institution.’
Which? wants better consumer protection
Which? has long campaigned for stronger protection of British consumers’ savings. While we’re pleased with the progress that’s been made, there are still a number of areas that need to be addressed.
We want to see:
- The FSCS applying to brands
You could have accounts with two banks that seem completely different but are in fact covered by the same license (for example HSBC and First Direct, or Halifax and Birmingham Midshire). Under the current system, if your savings are split between two banks that are owned by the same institution, you will only be compensated up to £85,000.
- Protection for temporary high balances
Many people will face situations during their lifetime where they hold temporary high balances in their bank accounts – for example if they sell a house, receive a redundancy pay-out or benefit from an inheritance. It is currently not practical for consumers to cover themselves in these instances so we’re campaigning for changes that will provide cover for temporary high balances.
- Stronger compensation arrangements for EEA banks
The collapse of Icesave highlighted a number of weaknesses in how consumers who save with foreign banks will be treated in the event of that bank failing. Which? is campaigning to ensure that there is a single point of contact for consumers to access the full amount of their compensation in their home country.
Find out more about our campaign to make banks safer.