FSA mulls new safety net for large lump sums

The Financial Services Authority yesterday suggested boosting the amount savers can have guaranteed by the Government if the bank they have made the deposit with goes bankrupt.

Under the proposal savers could claim up to £500,000 for up to six months under the Financial Services Compensation Scheme (FSCS) if their bank collapsed. The scheme currently covers balances up to £50,000.

The proposal is meant to protect customers temporarily holding large sums through one-off transactions such as property sales, inheritances, divorce settlements, pension lump sum payments, or redundancy.

"Our proposals will protect people who have little or no choice about holding a high balance for a limited period," the FSA's banking director, Thomas Huertas, said.

Separately yesterday, the FSCS, which compensates customers who lose money when a financial services firm collapses, said the annual charge taken from financial firms over the next year will be £156m, as banks continue to pay the cost of the credit crunch.

Still, in a rare positive surprise for lenders, the levy set by the scheme for 2009-2010 is lower than the £186m that the FSCS predicted it would be in its annual report in February.

In addition to this charge, financial firms that take in customer deposits will also have to contribute £406m towards the interest on government loans to cover the cost of compensating customers for the five bank defaults that have taken place in the past year. However, this sum is also lower than the £435m figure previously predicted, due to recent interest rate reductions.

"While most sub-classes will see no change from the indicative levies we published in our plan and budget for 2009-10, we recognise that the levy comes at a very difficult time for firms," Loretta Minghella, the FSCS's chief executive, said. "They can rest assured that we have taken steps to avoid over-levying and to contain our costs."

The FSCS has recently paid compensation to savers who had cash stored with the internet bank Icesave, as well as the collapsed lenders Kaupthing Singer & Friedlander and Bradford & Bingley.