Changes will be made to compensation thresholds by the financial regulator, following increased consumer concern about the stability of banks.
The Financial Services Compensation Scheme (FSCS), which provides a guarantee for savers against their account provider going bust, is to be overhauled in January 2010.
Several modifications to the current system have been unveiled by the Financial Services Authority (FSA), the regulator which oversees FSCS provision. Questions of compensation caused by the collapse of banks have attained increased importance over recent months, due to consumer concerns over the stability of financial firms in the turbulence of the credit crunch.
In 2007, Northern Rock faced collapse and suffered the first customer run on a bank for over a century.
Compensation thresholds for savings, investments and home finance advice are all to be maintained at their current levels of £50,000 from next year. However, levels of compensation within these thresholds are to be simplified.
Investments, currently protected for 100 percent of the first £30,000 and 90 percent of the next £20,000, are now to be 100 percent protected for £50,000 - the same as for cash. Compensation for home finance mediation is to be changed in the same way.
For non-compulsory insurance, including income protection and critical illness cover, will change from 100 percent of the first £2,000 and 90 percent of the rest to 90 percent of all money lost. However, compulsory insurance, such as car insurance, will continue to be 100 percent protected. Jon Pain, managing director of retail markets at the FSA, said: "The changes will help consumers understand and have confidence in the protection provided by the FSCS. In particular it removes the current potentially confusing provisions under which some parts of a claim can be paid out at 100 per cent and other parts at 90 per cent."
The FSCS cash compensation threshold was increased from £35,000 to £50,000 in 2008.
