Protect Your Savings - Secure Savings Bonds With The Deposit Guarantee Scheme

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by: bluespeckmedia
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Date: Tue, 17 Jan 2012 Time: 3:00 AM
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New legislation proposed by the Financial Service Authority (FSA) last week could mean that banks will have to prominently display the amount of protection and compensation which is entitled to savers, should anything go awry.

In spite of the credit crisis and campaigns to raise consumer awareness, the Financial Services Compensation Scheme (FSCS) is relatively unheard of and remains a last resort for savers. In particular, many savers remain in the dark about the Deposit Guarantee Scheme; a scheme which rewards compensation for lost deposits - on savings bonds for example - held in current and savings accounts.

It is hoped that the new regulations which are likely to be introduced next year will raise customer awareness of exactly what protection they can expect for their deposits and savings, subsequently raising confidence in the banking sector and encouraging investment.

What is the deposit guarantee scheme?

The deposit guarantee scheme is run by the Financial Services Compensation Scheme, a non-profit independent body, which has been in existence since 2001. All FSA authorised UK banks, building societies and credit unions are covered by the Deposit Guarantee Scheme, and any banks operating in the UK that are not authorised by the FSA are operating illegally.

This means that if an IFA authorised institution goes bust, savers can expect compensation to cover losses up to £85,000 for deposits against firms declared default from 31 December 2010 onwards.

In spite of the banking crisis of recent years, awareness of the scheme has remained relatively low. By guaranteeing 100% of an £85,000 deposit, the scheme is a big reassurance for those worried about initial investment and placing down large deposits, particularly on savings bonds accounts.

The scheme operates on a per person per bank basis, so if you have separate deposits in banks that operate under separate banking licences you will be eligible for up to £85,000 for each deposit. Similarly, if you have a joint account each person will be eligible for the £85,000 cover, up to £172,000 in total.

What can be confusing to consumers is that some high street names operate under the same single banking licence (e.g. Lloyds TSB and Cheltenam & Gloucester). You can find out whether this is the case for any two of your providers by contacting the FSA and this may sway your choice of savings bonds account.

Hector Sants, chief executive of the Financial Services Authority said of the coming changes to the FSCS:

"It is vitally important that customers have confidence in the banking system and that is why we are taking this step of making it obligatory for firms to prominently display compensation information,"

"The posters and website notices we are going to be mandating will help to prompt consumers to get more information and to make informed decisions about how much money to deposit with one bank."

As ever, it is always wise to consult an independent financial advisor before deciding which investment option is best for your circumstances. This is particularly the case with investments which may require larger deposits such as savings bonds and investment bond accounts. If you are worried about being covered by the Deposit Guarantee Scheme, double check the provider's banking licence with a savings bonds broker to see if you have similar products underneath the same name.

About the Author

John T Hughes writes for Savings Bonds, a site dedicated to helping you to find leading Savings or Investment Bonds options.