Watchdog reveals new saver rules

New rules announced by the FSA will protect savers

Most savers left high and dry by a failed bank or building society will get their money bank within seven days under changes to the deposit protection scheme, the City watchdog has said.

The Financial Services Compensation Scheme (FSCS) - which protects deposits of up to £50,000 - will aim to repay most savers within a week and all customers within 20 days, the Financial Services Authority (FSA) said.

Under the new regime - which will not come into force until the beginning of 2011 - deposits will be paid out 'gross' without taking into account any loans the customer has from the same bank.

This will offer greater protection because under current rules, any outstanding loans would be deducted from the savings returned to the customer.

FSA chief executive Hector Sants said: "To help underpin confidence in our banking system, individuals and small businesses must feel confident that their money is well protected.

"The new rules announced today will help deliver that confidence, build on the successful role of the FSCS to date, and aim to further minimise the potential hardship faced by depositors if an institution defaults."

Key changes announced by the watchdog also include ensuring that banks keep up-to-date information to allow quick processing and payouts under the FSCS if needed.

The FSA will meanwhile require deposit-taking institutions to tell its customers about the FSCS scheme and the protection it offers, as well as informing savers about any other trading names it operates under.

Interim rules which allow separate compensation cover for those savers with deposits in two merging building societies have also been extended until the end of next year.