Britain to cut bank deposit protection by £10,000 in response to EU directive

Picture: PA
Picture: PA
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Britain is reducing the maximum bank deposit it will protect if a lender fails by £10,000 to £75,000 from the end of this year, the Bank of England said yesterday.

European Union law requires member states to protect no more and no less than 100,000 euros of deposits.

Countries such as Britain which do not use the euro must adjust the local-currency amount once every five years.

“The process and timing is specified by the directive and is not at the Prudential Regulation Authority’s discretion,” the Bank’s regulatory arm said in a statement.

Sterling has strengthened by around 20 per cent against the euro since 2010, obliging Britain to cut the previous £85,000.

The Treasury said less than five per cent of customers of banks, building societies and credit unions would be affected by the lower limit.

Britain’s deposit protection scheme has paid out more than £26bn to 4.5 million people since it was established in 2001.

Major claims include Northern Rock, which suffered a bank run at the start of the financial crisis in 2007.

The change will take effect at the end of 2015, except for some new depositors such as larger companies and small local authorities which are being protected by the rules for the first time and will get £75,000 of protection immediately.

Under a new rule, deposits of up to £1m mwill have temporary protection for six months from the date of deposit, in a change aimed at helping people who are hit by a bank collapse while moving house or receiving an inheritance.

The PRA said it was considering allowing people who had deposits of more than £75,000 in long-term savings accounts to move their money without a penalty, and would consult on this until July 24.