Current account "compensation needs to be clearer"

The rules outlining the compensation that current account savers will be given in the event of a crisis at their bank need to be clearer, one expert has said.

Consumer watchdog Which? made the claim, elaborating that there needs to more understanding about how savers' deposits are protected when their bank goes bankrupt, in terms of breaking down the wording for the average consumer.

The body’s assertion follows the Financial Services Authority’s announcement that it will offer savers of temporary high deposit balances more protection if their bank goes bust by raising the compensation limit to £500,000.

Thomas Huertas, the Financial Services Authority director, said: "We are proposing that such transactional temporary high balances should have additional […] protection."

“Our proposals will protect people who have little or no choice about holding a high balance for a limited period.”

He added that the move will contribute to the banking reform objective of providing current account holders will greater levels of confidence.

The Financial Services Authority has issued current account and savings account holders with five golden tips: spread your cash around; check your savings provider is covered by a reputable scheme; read up on the compensation process, if something were to go wrong; take advantage of the security offered by government-backed institutions; and utilise the savings guarantees being offered by the Irish government.

Vera Cottrell, principal policy adviser at Which?, said that although the changes sound promising how they will come into effect is in many ways unclear.

She explained: "Our key concern is that the current proposal is not very transparent in terms of consumers understanding when they will be protected and when they will not and this could result in consumers getting into serious financial difficulties due to a lack of protection.

“Our example here is the failure of the proposed scheme to protect payouts from buildings insurance once they have arrived in your bank account."

The financial expert added that consumers should open an N&SI Easy-Access Savings Account, which will offer them 100 per cent protection and “allow them full flexibility”.

She concluded: "Otherwise they should disperse the money as soon as it arrives in their bank account."

“Ideally they should have it transferred into separated bank accounts from the start […] At the moment consumers can also make use of Northern Rock's government guarantee."