Banks will be required to display notices in branch and on websites that tell customers how much of their savings are protected if the bank goes bust, the Financial Services Authority (FSA) said today.
The plans - outlined in December - will also apply to building societies and credit unions. They will see stickers and posters displayed prominently in branches to draw attention to savings protection limits.
UK savers' deposits are protected up to £85,000 under the savings safety net - the Financial Services Compensation Scheme (FSCS). Foreign banks with branches in the UK which are not covered by the scheme will need to make this clear while stating which national scheme is providing protection.
The FSCS, which protects consumers when financial institutions go bust, said the plans are a ‘step in the right direction,’ but is urging firms to go beyond the FSA’s minimum requirements.
Cash lock: Each bank will need to spell out to customers more clearly in branch and online how much of their money is protected if it went bustMark Neale, chief executive of FSCS, said: ‘The banking crisis shows how important it is for consumers to have clear information about FSCS protection.
‘We never again want to witness the run on a bank because people do not know their money is protected. Since then, the industry has improved the quality of information it gives to consumers about FSCS.
‘However, it needs to do much more to provide clear, accurate information about the protection we provide. This is essential to building consumer confidence, and is not limited to deposits. It is something that is normal in other parts of the world.’
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The FSCS protects consumers if banks, building societies or credit unions go under [read more]. The safety net has paid out more than £26billion in compensation to over 4.5million people since 2001.
The scheme covers savings up to £85,000 for single accounts and £170,000 for joint accounts.
The compensation limit applies to each banking licence, and not each individual brand, meaning that consumers who want to remain within the limit have to know which banking groups own individual brands. For example, Santander owns the Cahoot banking brand, but has not applied for a separate FSCS licence. It means individuals with savings at both Santander and Cahoot would have £85,000 of their cash protected across both accounts, instead of £85,000 protected for each.
Read This is Money’s guide to which banking groups come under what licence.
While the scheme covers deposits held with UK banks and subsidiaries of foreign banks which operate in the UK, it does not cover money held with UK branches of European banks. These are covered by the relevant compensation scheme in the country where the bank has its head office.
For instance, savers with money in ING Direct are covered up to €100,000 by Holland's compensation scheme, not the UK’s scheme, while Bank of Cyprus UK savers are covered by the Cypriot savings net.
The FSCS recently launched a £4million publicity campaign in a bid to raise the scheme's profile, but later acknowledged that awareness had not been raised to the levels hoped.
The FSA will publish its new minimum requirements for deposit takers to display information about the scheme today.