The Government’s proposed increase in the savings compensation guarantee from £35,000 to £50,000, while a welcome  improvement, will provide scant reassurance for many savers.

The problem is that the £50,000 limit is per person, per bank. If you happen to save with a number of  institutions which are all  authorised by one parent bank, the £50,000 compensation would cover all these accounts in aggregate, not individually.

For instance, if you save with Bank of Scotland, Halifax, Birmingham Midshires, Intelligent Finance and St James’s Place bank, the savings guarantee would cover £50,000 of your savings in total, not per institution. 

The same principle operates under the current £35,000 savings compensation guarantee, so anyone with large amounts with institutions which are linked in this way might wish to consider spreading their risk across other banking groups.

The British Bankers’ Association recommends that savers check on the FSA website to see how an institution is authorised by visiting  www.fsa.gov.uk/register and typing in the firm’s name. This will show whether it is separately authorised or authorised by a parent bank. By typing in ‘Intelligent Finance,’ it is clear that IF is linked to Bank of Scotland and all the firms mentioned above.

However, just because one institution owns another, does not mean that they can’t be separately authorised. Although Royal Bank of Scotland owns NatWest, the two banks have separate authorisations, so a saver could hold £35,000 with both banks and be eligible for compensation  of up to £70,000, in the unlikely event that both banks went bust. 

But the FSA recommends that savers check with the institution itself as to its status with regard to compensation. Robin Gordon Walker of the FSA press office says: “Brands come and go, so it is advisable that savers check on the institution’s website or with the customer service helpline as to the extent of compensation.”

The limited nature of bank deposit compensation rose to prominence last year when the run on Northern Rock revealed some savers with deposits of £1m  and who would only have been covered for £35,000, if the Bank of England had not stepped in to guarantee customers’ deposits.

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