The possible rule change would follow the recent worsening of the credit crunch, which saw Icesave enter administration.
A further relaxing of the savings compensation limit is under consideration at the Financial Services Authority (FSA), the City regulator confirmed yesterday.
The new consultation will look into whether or not to allow people who temporarily have more money than usual in their current accounts to be covered for their balances by the Financial Services Compensation Scheme (FSCS) if their bank goes bust. People who receive pensions lump sums or sell their homes often hold over £50,000 - meaning that not all of their money will be covered by the current savings threshold.
Bank collapses have become a larger concern among UK depositors over recent months, with the credit crunch leading to the nationalisations of Northern Rock and Bradford & Bingley and the emergency bailouts of RBS and the Lloyds Banking Group. The UK savings arm of the Icelandic bank Landsbanki, Icesave, also entered administration.
Thomas Huertas at the FSA said: "We are proposing that such transactional temporary high balances should have additional FSCS protection. Our proposals will protect people who have little or no choice about holding a high balance for a limited period over the current FSCS limit of £50,000 before they can diversify it, if they wish, between different institutions."
The current compensation limit was raised from its previous level of £35,000 last year.
