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'Bonkers' Move Cuts Bank Guarantee By £10k

'Bonkers' Move Cuts Bank Guarantee By £10k

Bank and building society customers stand to get £10,000 less if the financial institution they save with goes bust, the Bank of England has announced.

Deposits have been protected up to £85,000 since 2010, under the Financial Services Compensation Scheme (FSCS).

But the Bank said this level of compensation will be cut to £75,000 on 1 January because of a European directive.

The move has been slammed as "bonkers" and "absurd" by experts, who said it was another blow for savers, who have suffered with years of poor returns on their money.

The current limit was established in the wake of the global financial crisis, based on the sterling equivalent of €100,000, and was set to be reviewed every five years.

The timing of the new calculation has coincided with the pound strengthening against the euro as Greece teeters on the brink of financial meltdown.

Danny Cox, chartered financial planner, Hargreaves Lansdown, said: "This is absolutely bonkers.

"Savers are already suffering rock bottom interest rates, and now to add insult to injury the safety of that cash is being undermined.

"The popularity of both NS&I pensioner bonds and premium bonds demonstrates savers care as much about safety as they do about rates.

"Savers need to have the comfort of knowing they are protected in the event of a bank or building society collapse."

Andrew Tyrie, chairman of the Treasury Committee, said it is "absurd" that current depreciation of the euro should be forcing a reduction in the level of protection for UK deposit holders.

He said: "Many savers and small businesses arrange their finances on the reasonable assumption that the deposit cover will be stable.

"They might also reasonably have expected that any changes would be in an upward direction, to reflect inflation and growth.

"Many people will now have to re-examine the arrangements they have in place."

The FSCS said that more than 95% of consumers will still be protected under the new compensation limit.

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

"What won't change is the service FSCS provides to the people using banks, building societies and credit unions.

"We will continue to be there for them."

A consultation on the changes is taking place - but it is thought any savers who face a decrease in protection would be allowed to withdraw funds between the new and old limits without penalty from 1 August to 31 December.

People with temporarily high balances, perhaps due to an inheritance, will be covered up to £1m for six months, it is expected.