Deposit protection: Bank compensation rules to test savers' brand knowledge

The level of deposits covered by the Financial Services Compensation Scheme (FSCS) is rising from 50,000 to 85,000 for single accounts and from 100,000 to 170,000 for joint accounts.

New faster payout rules also come into force tomorrow, under which the savings safety net will have a target of paying the majority of claims within seven days and the rest within 20 days.

The FSCS will also have to pay out the total amount of savings that customers have lost, up to the compensation limit. This ends the current practice in which the money people owe from loans held with the same institution can be deducted.

This is the fourth time in just over three years that the compensation limit for savers has been increased.

It was first raised from 31,700 to 35,000 in the wake of the crisis at Northern Rock in October 2007, before being increased to 50,000 a year later. It was raised again on June 30, 2009, to the higher level of 50,000 or 50,000 euros.

The latest rise, which increases the compensation limit to the equivalent of 100,000 euros, will bring the UK in line with a new European Economic Area compensation level.

Some compromises have however been made. People who hold accounts with two building societies that have subsequently merged will no longer have separate cover for each society but will now just be covered up to a total of 85,000 for a single account or 170,000 for a joint account.

Despite calls from consumer groups, the compensation limit will also continue to apply to money lost per banking licence and not per individual brand.

As a result, people who want to remain within the limit will have to ensure that they do not have more than 85,000 saved with any one group, meaning they will have to know who owns individual brands.

For example, people who want to stay within the compensation limit must not save more than 85,000 with HSBC and First Direct.

They must also avoid putting more than this sum into Halifax, Bank of Scotland or Birmingham Midshires, although they could save more than 85,000 and still be covered if their money was split between Lloyds TSB and Halifax, as the two groups have retained separate banking licences, despite being part of the same parent company.