Savers are to be offered greater protection against bank failures, amid concerns that the coronavirus pandemic has increased the likelihood of financial firms collapsing.
The Financial Services Compensation Scheme is the industry lifeboat fund which compensates customers who have lost money to failed financial institutions. Deposits with British banks, building societies and credit unions are normally protected up to £85,000 per person.
However, there is additional protection for customers who have temporarily high balances of up to £1m. This may be because the proceeds of a house sale have been deposited in their account or they have received a large redundancy payment.
Divorce settlements and insurance payouts may also cause customers to have a large balance for a short period.
Normally this cash is protected for six months but the FSCS has extended its coverage to 12 months. This is in response to consumers’ concerns that their money could be held with banks for a longer period because of coronavirus-related slowdowns in the banking system.
Caroline Rainbird, of the FSCS, said the move would give customers reassurance that their funds would be protected in the event of a bank failure.
“The coronavirus pandemic has been very worrying for everyone, and people are understandably concerned about the possibility of losing their temporary high balance should their deposit taker fail,” she said.
“The temporary extension of FSCS’s protection from six to 12 months will do much to reassure them should the worst happen during these uncertain times.”
The extension will cover any bank failures that occur after Thursday August 6 and will apply to new and existing customers with temporarily high balances. This means a customer who received a large deposit in March 2020 would be protected until March 2021.
The FSCS said the six-month cover period would resume from February 1 2021.
The move was sanctioned by the Bank of England’s Prudential Regulation Authority. It said the Covid-19 pandemic meant people had limited access to banking services, and that residential property transactions were taking much longer than usual.