New rules to protect savers, which include increasing the amount you can reclaim when a bank fails from £85,000 to £1million in certain circumstances, have been confirmed by the Bank of England today.
All UK-regulated current or savings accounts and cash ISAs in banks, building societies and credit unions are covered by the Government-backed Financial Services Compensation Scheme (FSCS).
This means that if the bank fails, you'd get back up to £85,000 per person, per financial institution. See our Are your savings safe? guide for full information on protecting your cash.
But following a consultation, four key rule changes have been confirmed by Bank of England today.
- Increasing the FSCS limit from £85k to £1 million for temporary balances – from 3 July 2015.
This will see up to £1m protected for a six month period if your provider fails. The extra cover will apply from the date on which the money is transferred into the account, or the date on which the depositor becomes entitled to the amount, whichever is later.
This is to cover life events such as selling your home, payouts linked to marriage, divorce, retirement, dismissal, redundancy, invalidity or death, or payouts from insurance benefits or compensation for criminal injuries or wrongful conviction.
If your bank failed, you'd get the first £85k within seven days, while you'd have to provide evidence that your balance is temporary to be compensated for anything above this amount up to £1m. This could include a letter from a solicitor confirming a house sale or a letter from an insurance company confirming a personal injury payment, for example.
Introducing unlimited cover for personal injury compensation – from 3 July 2015.
Any cash that's been paid out by an insurer as part of a personal injury claim will be covered if your bank fails – no matter how large the sum.
Currently if your bank fails and you had over £85k in it from a personal injury insurance payout, you'd only be compensated up to the £85k limit.
Increasing the FSCS limit for certain insurance products – from 3 July 2015.
Cover in the event of an insurer failing will be increased from 90% to 100% for annuities, pure protection, claims arising from death or incapacity and professional indemnity insurance.
This is to reflect the potential for significant adverse consequences to policyholders, and the wider financial system, of cover being disrupted. The limits for all other types of insurance will remain at 90% of the cover.
Automatic switching when a bank fails – from 1 December 2016.
Accounts will automatically be switched to another provider if your provider fails. This means you'll still be able to access your account and use your services as normal rather than having to reclaim your cash from the FSCS.
The Bank of England is still working out exactly how this will work in practice, but it says this will be phased in from 1 December 2016.
Greater protection for savers
Andrew Bailey, deputy governor of the Bank of England and chief executive of the Prudential Regulation Authority says: "These proposals will allow customers to have continuous access to the money in their bank account – or receive payment from the FSCS if this is not possible.
"Additionally, the increase in FSCS limits for certain types of insurance will mean policyholders who may find it difficult to obtain alternative cover, or who are locked into a product, have greater protection if their insurer fails."