Savers will get better protection in the event of their bank or building society collapsing.
The Financial Services Authority (FSA) has announced that the compensation rules for savers and businesses are to be strengthened.
Changes to the Financial Services Compensation Scheme (FSCS), which safeguards savings and deposits up to £50,000, will see compensations paid more quickly.
Under the EU Deposit Guarantee Schemes Directive, payments must be made within 20 days.
However, the FSA said, as from 31 December 2010, it intends to introduce a new timetable that would refund individuals and small businesses within seven days. Other investments would be compensated for inside 20 days.
Another change to the system will ensure that savers get all of the money due to them up to the £50,000 threshold.
The current system means that for those customers who have both savings and a loan with a bank or building society, the deposit is used to pay off what remains owing on the loan, and the balance is then returned to the individual or business. If the debt is greater than the credit, they receive no compensation.
Once the changes come into effect, savers will be paid a ‘gross’ compensation; in other words, the full amount of their deposit up to £50,000 without any deductions for outstanding loans.
A further new rule which is to apply from 1 January 2010 will require banks and building societies to tell customers about the FSCS and the level of protection it offers to depositors.
The FSA has also extended, until 30 December 2010, its interim rules which allow separate compensation cover for customers with deposits in two merging building societies.
The same extension has been made for customers of a building society which merges with a subsidiary of another mutual society, and for customers whose deposits are transferred from a failed firm to another deposit taker where they already have an account.
Hector Sants, chief executive of the FSA said: “To help underpin confidence in our banking system, individuals and small businesses must feel confident that their money is well protected.
“The new rules will help deliver that confidence, build on the successful role of the FSCS to date, and aim to further minimise the potential hardship faced by depositors if an institution defaults.”
