Savers will receive compensation more quickly if their bank, building society or credit union goes bust, the Financial Services Authority (FSA) has announced.

The City Watchdog’s Financial Services Compensation Scheme currently awards up to £50,000 in compensation for savers who lose their money because their bank has gone under.

Today the FSA announced that from 2011 savers would receive their compensation within 20 days of an institution folding, rather than the current typical six-week wait.

Since the 2007 run on Northern Rock after the bank made an emergency application for government funding, the rules about deposit protection have come under scrutiny. Many customers now choose to spread their savings over a number of banks accounts at different institutions, to minimise the risk of losing everything in one go.

Under the Financial Services Compensation Scheme, financial institutions would be forced to pay a levy that would cover compensation for savers if their bank or building society were to go bust.

The new rules would see individuals and small businesses receive compensation within a target seven days, and a maximum of 20 days.

Currently, individuals and small businesses that have debts with a bank, such as a loan, could have the amount they owe deducted from any compensation for savings should the bank go bust. The new rules, which come into effect on 31st December 2010, would see savings protected to the £50,000 limit. They would not be used to offset loans.

This entry was posted on Monday, July 27th, 2009 at 8:15 am and is filed under Banking, Loans, Savings. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.