Bank account compensation cut ‘absurd’ says top MP

News that millions of bank customers will get £10,000 less compensation in future if their bank goes bust has been criticised as “absurd” by a senior MP.

Under the Financial Services Compensation Scheme (FSCS), consumers can receive up to £85,000 per account.

But from 1 January 2016, the amount will be reduced to £75,000, as a result of the strength of the pound.

Furious bankers said they had been given no notice of the changes, which were announced by the Bank of England.

“The level of anger is extraordinary,” said one source in the industry.

Andrew Tyrie MP, the Tory chairman of the Treasury Select Committee, said the whole scheme was “defective”.

“It is absurd that the 16% depreciation of the euro largely brought about by the crisis in the eurozone in general, and the Greek crisis in particular, should be forcing a reduction in the level of protection available to UK depositors,” said Mr Tyrie.

‘No sense’

The compensation scheme is run under a European directive, which sets the limit at €100,000 across the whole of the European Union.

But the precise sum in pounds for the next five years is based on exchange rates on 3 July.

The euro has fallen significantly against the pound this year, partly because of the crisis in Greece.

The pound is currently trading at €1.40, close to its highest level since 2007.

“It makes no sense to fix deposit guarantees….to a volatile variable like the exchange rate,” said Mr Tyrie.

He said he would be writing to the chancellor to demand a change.

Five-year review

Consumer groups also reacted strongly.

“This will be a massive blow to savers,” said Anna Bowes, director of the independent website, Savings Champion.

“It will also be an administrative headache, as savers will need to find new homes for their money.”

The Treasury said the change would have been implemented now, but it was delaying it until January to give the public a chance to adjust to the lower level of protection.

“People have six months to get ready for the change, if necessary,” said Mark Neale, the chief executive of the FSCS.

The new limit of £75,000 will still protect more than 95% of consumers, the FSCS said.

The compensation scheme applies to those with accounts in banks, building societies and credit unions.

The level will not be reviewed for a further five years.

The consumer group Which? said bank staff would need to be made aware of the changes.

“We’ve consistently found bank staff have an extremely poor knowledge of the scheme so, with people’s savings soon to have less protection, we expect all banks to ensure staff are properly trained,” said Richard Lloyd, the executive director of Which?