'Faster relief' for bank victims

Savers will receive compensation within seven days if a bank fails, under plans from the Financial Services Authority.

At present payouts for savers with failed banks can take up to six weeks, leaving many worried about access to money in the meantime.

The compensation scheme has been tested following the collapse of high-profile banks such as Icesave in recent months.

A representative of the banking industry said time was needed to consider the FSA's plan.

UK bank customers are covered for the first £50,000 of their savings per person per bank, building society or credit union - although the government has guaranteed savings above this level in recent times.

'Worrying wait'

The system compensation for customers of a collapsed bank is run by the Financial Services Compensation Scheme (FSCS).


We recognise that to help underpin confidence in our banking system consumers must feel confident that their money is well protected - regardless of whether they ever have to claim compensation
Hector Sants, FSA

Q&A: Deposit protection plans

It has had to respond to thousands of claims in recent months, with many stemming from UK savers who had money with Icelandic bank Icesave which collapsed in October.

Most of the electronic claimants have received their cash within five working days, but paper applications can take up to six weeks to be dealt with.

The compensation system is paid for through a compulsory levy on existing banks and building societies, and they are likely to face extra costs if the latest proposals go ahead.

The plans include paying compensation for all savers' money if a bank collapses, irrespective of how much debt they have with the same institution. At present this debt is taken into account when calculating the payout.

Eligibility for compensation would also be extended slightly.

Education

Banks will be pressed to keep up-to-date information on customers and told to educate their customers about the existence of the compensation scheme.

Withdrawing cash
Some savers have been worried about the security of their money

They will also have to explain details of compensation to customers if they have more than one account with one institution.

Some banks have different divisions but are authorised under one name. So if, for example, a saver has £50,000 with the Halifax and £50,000 with the Bank of Scotland, then he or she is only covered for the first £50,000, as both Halifax and Bank of Scotland are part of the HBOS bank group.

Other banking groups, however, have various divisions separately authorised.

For example, a customer who has £50,000 with the Royal Bank of Scotland and £50,000 with NatWest will have all of the money protected, even though they are part of the same group.

'Confidence'

"Experience in the last year has highlighted how essential compensation is and that it is imperative consumers understand and trust that they will be reimbursed if a bank, building society or credit union fails," said Hector Sants, chief executive at the FSA.

"We recognise that to help underpin confidence in our banking system consumers must feel confident that their money is well protected - regardless of whether they ever have to claim compensation."

A spokesman for the British Bankers' Association agreed that consumer confidence was a priority.

But he added that it was too early to comment on the "complex" proposals to speed up the compensation system.

Building societies, especially, have been unhappy that they have had to pay levies to the FSCS to cover compensation from banks which they believe did not act with sufficient care.

They might need to be prepared for further costs as the proposals would cost more than £900m to implement over five years.