Deposit Protection to Fall

The compensation for lost deposits is to be cut by £10,000.

On the first Friday in July, a few days before the Budget, the Prudential Regulatory Authority (PRA) announced that the level of Financial Services Compensation Scheme (FSCS) protection for depositors was to be cut with immediate effect from £85,000 to £75,000. The PRA, which is part of the Bank of England, blamed the change on the requirements of the European Deposit Guarantee Schemes Directive. The Directive says that non-Eurozone countries must recalculate their deposit protection limit every five years, setting it at the equivalent in their domestic currency to €100,000, albeit with some judicious rounding permitted.

As sterling has strengthened considerably against the euro since mid-2010, the protection given to deposits has dropped. However, as the Directive only sets a minimum, the Treasury did make some concessions:

If the change affects you, now could be a good time to review with us whether you need to hold so much cash on deposit. After all, it is probably earning little more than 1% – and that’s before tax.