How are savings protected now?

The Financial Services Compensation Scheme (FSCS) covers bank deposits up to £35,000 per person, or £70,000 on joint accounts, held in financial institutions authorised by the Financial Services Authority (FSA).

If a UK bank goes bust, savers are contacted by the liquidator or FSCS and sent application forms to claim compensation up to these limits. This should be paid around a month after the collapse of a large bank.

What exactly does the limit cover?

The limit covers all of a saver's money within an institution, not a single account. So, a customer with two accounts with NatWest, each containing £35,000, is only protected up to the first £35,000.

And note that the limits are for savings within an authorised company - not a brand. This is significant as Halifax, Bank of Scotland, Birmingham Midshires and Intelligent Finance, for example, are all part of the same group.

What is going to change?

The only change announced so far is that the deposit protection limit will be raised to £50,000 per person, or £100,000 on joint accounts.

When?

The increase applies from Tuesday, October 7.

Why now?

The move is a Government effort to restore consumer confidence and maintain financial stability during the ongoing banking crisis. There had also been fears within the industry that many savers would defect to Irish banks, such as Anglo Irish Bank, which now offers savers - including those in the UK - unlimted protection for the next two years.

What's next?

The Financial Services Authority, the City watchdog behind the changes, is considering whether the deposit limit should be raised futher, and also looking at the speed with which the FSCS pays out.

There have also been calls for the Government to guarantee 100 per cent of deposits held with British banks although this is unlikley unless a deal can be agreed with the European Union.

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