Legislation has been introduced by the government today (3 July) to ensure retail customers and small businesses continue to receive the current level of deposit protection.
The Prudential Regulation Authority has announced changes to its rules to implement the new level of deposit protection provided by the Financial Services Compensation Scheme.
This will mean retail customers and small business will continue to receive deposit protection of up to £85,000 until 31 December 2015, after which a new deposit protection limit of £75,000 will come into effect.
The FSCS Deposit Guarantee Schemes Directive sets the coverage level at the sterling equivalent of €100,000 (£71,075).
This was set at £85,000 in 2010, at which time it was equivalent to €100,000. Due to the increased strength of the UK economy, the value of the pound sterling has increased and the government ruled it is necessary to reduce the limit.
Firms will write to their customers to inform them about the changes to the deposit protection limit before they comes into effect.
The government said in a statement that more than 95 per cent of retail depositors will continue to be fully protected by the FSCS’s new deposit protection limit.
Every five years the PRA is required to review the deposit, and will manage any future changes in a way that seeks to minimise disruption for depositors, the statement added.
Danny Cox, chartered financial planner at Hargreaves Lansdown, called the move “absolutely bonkers” and pointed out that savers are already suffering rock bottom interest rates.
“Savers need to have the comfort of knowing they are protected in the event of a bank or building society collapse and a weakening of the statutory protections is unhelpful to say the least”