BoE to restore deposit protection limit to £85,000

The maximum compensation payable to savers if their bank collapses is to return to its previous limit of £85,000, a report has said.

The Bank of England (BoE) said the change to the Financial Services Compensation Scheme (FSCS) would happen by 30 January 2017.

The limit was lowered to £75,000 in July 2015, as the pound grew in strength against the euro.

But the pound has now fallen more than 10 per cent against the currency, inciting the change.

The amount of compensation payable is set at €100,000 across the European Union.

Compensation in sterling is normally recalculated every five years, but the European directive involved allows a more frequent assessment where there are “unforeseen events, such as currency fluctuations”, the report says.

In a statement, the BoE said: “Taking into consideration the developments in financial markets following the UK’s referendum vote to leave the European Union on 23 June 2016, including with respect to the GBP/EUR exchange rate, the PRA considers that a structural shift in the exchange rate has occurred.  These events were unforeseen when the UK limit was reduced in 2015.

“The PRA will continue to monitor fluctuations in the exchange rate but, barring unforeseen events, will seek to avoid making further adjustments to the deposit protection limit.”

With an exit from the European Union imminent, Andrew Tyrie, chairman of the Treasury Select Committee, said it is time for Britain to look ahead.

“The absurd situation, in which the UK is left vulnerable, at the discretion of the European Commission, to frequent changes in our deposit scheme, must be brought to an end,” he said.

“Brexit should give the UK the opportunity to set its own level of protection. We should take it.”