FSA plans to protect large 'one-off' deposits

Published on Tuesday 31 March 2009 21:15

SAVERS with large sums parked in an account temporarily could get extra protection in the event of their bank or building society going bust, under new proposals unveiled yesterday.

The plans were set out by the Financial Services Authority (FSA) to address concerns that UK savers with balances above the existing compensation limit were vulnerable in the event of bank failures.

Currently, the first 50,000 of savings with each institution is protected by the Financial Services Compensation Scheme (FSCS), or 100,000 for joint accounts.

But the FSA has proposed increasing this to 500,000 for six months where a large deposit is made for a specific reason.

For example, savers with proceeds from a house sale, insurance contract or inheritance payment would benefit from the extra protection for six months. Sums arising from divorce settlements, redundancy payments and pension funds would also come under the raised limit.

Savers depositing proceeds from personal injury awards and settlements would get unlimited protection for up to 18 months.

Thomas Huertas, banking sector director at the FSA, said: "Our proposals will protect people who have little or no choice about holding a high balance for a limited period over the current FSCS limit of 50,000 before they can diversify it, if they wish, between different institutions."

Huertas added that the time limit would deter other consumers from keeping high balances for long periods.

Kevin Mountford, head of banking at moneysupermarket.com, welcomed the move.

"It will reduce the anxieties that many people faced over the past year when selling a home or a business and looking to safely invest the proceeds while still getting a decent return," he said.