Deposit protection limit set to fall by £10k in days

Savers have just days left to move their money before the amount they are protected by if their bank goes bust is slashed by £10,000.

The Financial Services Compensation Scheme (FSCS) currently protects deposits of up to £85,000 held by a saver in a bank, building society or a credit union if it fails.

But in July, the Bank of England announced that the £85,000 limit would be cut to £75,000 from January 1.

The change, which is a requirement of a European directive, has been described by commentators as "bonkers" and "absurd".

The FSCS deposit protection limit is recalculated every five years and set it at a sterling amount equivalent to 100,000 euro.

The £85,000 compensation limit was set in December 2010, based on the equivalent of 100,000 euro at the time.

The new £75,000 was set in July. The pound had strengthened against the euro as the crisis in Greece unfolded.

The Treasury put measures in place in July to hold the £85,000 limit until December 31, to give savers time to make arrangements to adjust.

When the new limit starts on January 1 it will again remain in place for five years.

The FSCS is the UK's compensation fund of "last resort" and it may pay out to consumers if a financial services firm is unable, or likely to be unable, to pay claims against it. Compensation limits are applied on a "per person" and a "per firm" basis.

It has said that more than 95% of consumers will still be protected under the new compensation limit.

According to research by online savings provider GE Capital Direct among over 2,000 savers in November, more than half (56%) of people who had over £75,000 in savings said they had made no active changes to their money management to prepare for the new limit.

Of the 56% who had not yet done anything, nearly three-quarters (73%) had no plans to make changes before January 1, even though three in ten (29%) said that up to £50,000 of their cash will be left unprotected.

Andrew Tyrie, chairman of the Treasury Committee, previously said it was "absurd" that the depreciation of the euro should be forcing a reduction in the level of protection for UK deposit holders.

And Danny Cox, chartered financial planner, Hargreaves Lansdown, previously said: "This is absolutely bonkers. Savers are already suffering rock bottom interest rates, and now to add insult to injury the safety of that cash is being undermined."

Another change recently put into place means that people with temporarily high balances, perhaps due to a windfall, will be covered up to £1 million for six months from the date on which the money is transferred into their account, or the date on which the depositor becomes entitled to the amount, whichever is later.

This is to ensure that customers are protected when they deposit funds over the limit as a result of specified events, including following a house sale or funds received from a "life event" such as a divorce settlement or inheritance.

:: People can check to make sure that their savings are protected on the FSCS's website at protected.fscs.org.uk/money-protection-checker/.