Savers need added protection, say MPs

16 September 2008

A scheme designed to protect savers in the event of a bank or building society failing should be upgraded, a committee of MPs has argued.

The Commons Treasury Select Committee said in a report that greater safeguards were needed for savers who have accounts with various providers.

At the moment, savers are guaranteed the first £35,000 of their savings should their bank or building society collapse.

However, the Financial Services Compensation Scheme works on a person per bank basis, which means that the £35,000 ceiling could apply to all the savings that someone may hold with various providers operating under the same banking licence.

Some banking groups run separate authorisations for each of their banking brands so that the £35,000 protection covers accounts in each of their companies and savings providers.

But not all banking groups operate individual banking licences.

The select committee report said: “It is unreasonable to expect customers to know whether their institution has an individual or a shared banking licence.”

One answer would be for the FSA to require each banking brand to have its own authorisation.

John McFall, the Treasury committee chairman, said: “There has been much focus on whether the appropriate compensation limit should be £35,000, £50,000 or £100,000. This is irrelevant if we do not possess a deposit protection system that actually works. It is far more important that banks be able to identify who their insured depositors are, and that the FSCS be able to process compensation claims quickly.”