Monday, 21 November 2016


The Bank of England has announced that the amount of savings that is protected if a bank or building society goes bust will rise from £75,000 to £85,000 on 30 January 2017. 

In reality it has little choice. The limit is set by an EU Directive at €100,000. That came into force in 2010. Before that the UK had a limit of £50,000. When the EU harmonised protection in all member states the countries which did not use the Euro had to fix the limit by converting €100,000 to their own currency.

At the time that level was £85,000 and that was the new limit from July 2010. The conversion rate is normally reviewed every five years and by the middle of 2015 the pound had strengthened against the euro, When the new level was set on 3 July 2015 €100,000 was worth a little over £71,000 which the Government rounded up to £75,000 - the maximum the Directive allowed. It also delayed the introduction of the new limit until 1 January 2016. 

Normally the limit in Sterling would be fixed for five years regardless of currency fluctuations. But the EU Directive has a provision which forces Governments to review it earlier in “unforeseen” circumstances. 

The wording of the Directive means the Government must take action if it accepts the fall in Sterling was unexpected. “Member States shall make an earlier adjustment of coverage levels, after consulting the Commission, following the occurrence of unforeseen events such as currency fluctuations.” (Directive 2014/49/EU Art.6 para.5)

Since the Referendum on leaving the EU the pound has fallen by about 15% against the euro and today €100,000 is worth about £85,000. 

The Bank of England, through the Prudential Regulation Authority, has accepted that this fall in Sterling and the vote to leave the EU were unforeseen when the level was fixed in 2015. So it has taken action to change the UK protection to its current level against the euro. It has chosen the level of £85,000 at which it was fixed for five years from 2010. 

Although the change will start from 30 January the regulator proposes giving banks, building societies, credit unions, and others which offer savings accounts up to five months after that date to adjust all the information they give to customers. It will not require them to tell customers individually of the change but expects their staff to be able to answer questions correctly at least from 30 January 2017. 

While the UK remains in the EU the Government will have to consult the European Commission about any change. It is not clear if it has yet done so.

In August, when I wrote about these rules in the Financial Times, the Treasury would not say if it was considering putting the matter to the Commission. A spokesman told me “The Government will abide by EU regulation until we leave. So we are where we are.”

Technically this change is also subject to public consultation but it would be very surprising if it did not go ahead as planned. If you want to comment read the Consultation Paper CP41/16 and submit your views by 16 December.

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21 November 2016