Compensation for savers if banks go under set to increase

Updated: 10:09 EST, 23 September 2010

Compensation limits for savers who lose money when a bank or building society goes under are set to increase significantly from the end of this year.

The Financial Services Compensation Scheme (FSCS) is increasing the amount it will pay out to the equivalent of the first 100,000 euro (£85,274) that people have lost from December 31.

The new limit is well up on the maximum of £50,000 that single account holders currently receive to cover savings lost when a provider is declared in default.

New limit: Compensation will be significantly higher than the current £50,000

People with joint accounts will also benefit from the change, with the maximum amount of redress they can receive rising from its current level of £100,000 to 200,000 euro (£170,548).

The move follows new EU legislation which aims to harmonise the amount of money savers across Europe will receive as compensation if a provider goes under.

The new rules also state that savers must receive their money within 20 days of an institution being declared in default, although the FSCS has set itself the target of paying out within seven days.

The FSCS limit was last increased in October 2008, at the height of the banking crisis, when it was raised to £50,000.

It had been increased to £35,000 a year earlier, following the collapse of Northern Rock, before which it had paid out up to 100 per cent of the first £2,000 lost and 90 per cent of the next £33,000.

The FSCS has had to step in several times to compensate savers since the credit crunch first struck, paying out redress to people who lost money through the collapse of the Icelandic banks, including Icesave, and those who had money in Bradford & Bingley and Dunfermline Building Society.