The Financial Services Authority has announced today that the £50,000 compensation scheme for savings accounts will take effect next Tuesday, October 7.

As part of its plans to enhance public faith in the UK banking sector, the increase of Government protection from £35,000 to £50,000 will be welcomed by worried savers who fear for their hard earned cash should their savings accounts provider buckles under the weight of the credit crisis.

Despite fears that rolling out the new threshold so soon would inflame concerns regarding the integrity of banks’ resistance to economic turmoil, from next week savers will be able to claim compensation for 100 per cent of the first £50,000 of their savings. Those customers who have joint accounts will be eligible to claim £100,000 compensation.

Those with more than £50,000 in one account are being urged to spread their assets over more than one bank, ensuring that the banks are not owned by the same financial conglomerate. Customers who have Bradford & Bingley or Abbey savings accounts, for example, which are both owned by Santander, will only be eligible for one lot of £50,000 compensation.

“There has been extensive debate about the compensation levels. In the interests of providing clarity over the minimum level for the long term we have now decided to implement the move to a £50,000 limit from Tuesday.” said Hector Sants, FSA chief executive officer, of the new threshold for savings accounts.

The announcement comes shortly before the introduction of the Government’s Banking Bill, which will be introduced in Parliament next week, and is hoped to bring more security for consumers during the economic crisis.

Mr Sants added that the Chancellor Alistair Darling has made it clear that The Treasury will do “whatever is necessary to maintain financial stability in the banking sector.”

While both savers and banks will be glad that the extra compensation is coming into effect so soon, there is still a great deal of pressure on the Government to introduce a protection plan more akin to that in Ireland, where the Government has guaranteed 100 per cent of deposits.

Banks have been calling for extra protection for savers in order to stem the flow of people withdrawing their money and moving it to a safe haven, such as accounts that are backed 100 per cent by the Government – such as Northern Rock and NS&I; – or those backed by Irish banks, such as Post Office savings accounts.

© Fair Investment Company Ltd