The FSCS has been designed to guarantee bank and building society customers’ savings up to £31,700. This is broken down into guaranteeing 100 per cent of the first £2,000 and 90 per cent of the subsequent £33,000.
Yet, customers’ confidence in the safety of their savings was revealed as extremely low in the face of the Northern Rock crisis, with over £2 billion withdrawn.
Hector Sants, chief executive of the Financial Services Authority, admitted: “The existing industry backed scheme does have limitations, particularly with regard to larger deposits, and it does seem reasonable to conclude that this may well have been a contributing factor in the loss of confidence seen with Northern Rock depositors.
“Investors are aware of the limitations of the scheme, and in the light of events, it would be right to look at it again.”
The FSCS falls short of some countries’ compensation schemes, such as the US where people’s savings are guaranteed 100 per cent up to $100,000, or France which protects 100 per cent of 70,000 euro.
James Cotton, mortgage specialist for London & Country, said: “The safety net there for consumers and savers will often seem more than adequate. It’s only when you see a big test that you find there are limitations. The question is whether it was the limits on the amount of the deposit being too little or whether people know the compensation scheme was there.”
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