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Improvements Announced To Savings Compensation Scheme

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Consumers will be compensated within seven days of a bank or building societies going bust under new rules announced by the City watchdog today.

At present refunds can take up to six weeks.

The Financial Services Compensation Scheme (FSCS), which ensures that deposits up to £50,000 are protected, has also been improved to ensure that savings are ring fenced and paid out on a "gross" basis, preventing the cash being used to pay-off outstanding debts owed to the same financial institution.

The new rules will not come into effect until December next year to coincide with changes to a Europe-wide directive, which requires deposits are refunded completely within 20 days.

It is hoped that the new rules will reduce the uncertainty amongst consumers about the length of time it may take to receive deposits in the event that a bank or building society collapses.

Hector Sants, chief executive of the Financial Services Authority, which runs the FSCS, said: “To help underpin confidence in our banking system, individuals and small businesses must feel confident that their money is well protected.

He added: "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."

The FSCS protects deposits up to £50,000 in a single financial institution in the event that it goes bust. Banks, building societies and credit unions are covered by the scheme.

As part of the changes announced today by the FSA, from January next year financial institutions will also be required to explain to customers which brands, such as Alliance & Leicester and Abbey, are part of bigger banking groups, such as Santander.

Oh dear the new rules aren't brought in until next year (after the general election).

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