£50,000 savings guarantee

02 July 2008

Chancellor to increase savings guarantee by £15,000

The Chancellor of the Exchequer, Alistair Darling, yesterday confirmed that the guarantee on savers’ money would be increased from £35,000 to £50,000 if their bank goes under as part of new banking legislation due to come into force next February.

According to The Times Online, the increase is “an attempt to give consumers more confidence in the banking system in the event of another Northern Rock-style collapse”.

However, Mr Darling said that taxpayers would pay for the increased amount at first and not the banking industry.

As things stand in the USA, banks contribute funds to such the compensation scheme to compensate savers should the bank collapse. The Chancellor said that such a scheme would not be introduced in the UK at this point in time, but that the option would be left on the table for the future.

If a bank does go under, taxpayers’ money will be used by the Government to pay back savers within seven days. The money would then be claimed back when the bank’s assets were sold. The taxpayers would foot the bill at first because the sale of the bank could take months, or even years, and savers may need their money back sooner than this.

The move has been welcomed by the banking industry.

“We’re pleased there’s going to be a further period of reflection,” said Eric Leenders, executive director of the British Bankers’ Association.

“This is the biggest change to banking regulation in ten years and we don’t want to rush into it,” he added.

Speaking yesterday, Treasury officials said that the increase meant that 97 per cent of savings would be covered by the £50,000 guarantee. This amount would be available per person, per bank.

The consumer watchdog, Which?, has expressed that it thinks the move is not enough.

“Payouts must be faster that the proposed seven days to minimise the disruption to people’s lives,” said Vera Cottrell, its finance campaigner.

She also called on the Government to make the savings guarantee apply to each brand of bank as opposed to per ‘parent company’. For example, if HBOS were to collapse, someone who had £50,000 savings with Halifax, Bank of Scotland and Birmingham Midshires, which are all brands belonging to HBOS, would only be eligible to one payout of £50,000.

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