Savings accounts to be guaranteed up to £50,000

01 October 2008 / by Rachael Stiles
In an attempt to calm consumers amid the white noise of crashing shares and collapsing banks, the Government has unveiled plans to raise the amount that savings accounts are protected by to £50,000.

Previously, savers' deposits were only guaranteed up to £35,000, but they can now enjoy an extra £15,000 of protection if their bank or building society collapses.

It is hoped that the new threshold will stem the flow of savers withdrawing their money from already struggling banks, thus preventing another run like the one suffered by Northern Rock last summer, or Bradford & Bingley earlier this week.

Those with £50,000 or less saved in one bank can rest easy, but others are still likely to move any money above this amount to a different account. They should beware, however, that savings accounts with a different bank may still be owned by the same group – such as Santander owning Abbey and Bradford & Bingley – and in such cases only one account is guaranteed.

The new level of protection for savings account customers is "better late than never" according to Kevin Mountford, head of savings at moneysupermarket.com.

"The Irish Government's initiative to stand behind 100 per cent of savings deposited with Irish banks is likely to have spurred the UK Government into action." Mr Mountford said. "If it hadn't acted now we'd have seen a flood of UK savings into Irish accounts - with banks such as Allied Irish and Anglo Irish already offering attractive rates to UK savers."

While the announcement has been met with relief from savers and banks, both of which feared losing their deposits, Gordon Brown is reluctant to roll out the new protection scheme straight away due to concerns that, rather than offering reassurance to consumers, this will act as a warning light that the banks are in dire straights.

The Financial Services Authority (FSA), which has the power to introduce the new change at any time, was going to raise the threshold this month, but will now wait until the latest tremors in the economy have settled.

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