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New rules to guarantee savings Fresh rules to guarantee savings
(30 minutes later)
A new scheme to protect savers with money deposited in banks or building societies has come into force. The scheme to protect savers with money deposited in UK banks and building societies will be expanded.
Under the guarantee - promised after the run on Northern Rock - customers' first £35,000 will be fully protected.Under the guarantee - promised after the run on Northern Rock - customers' first £35,000 will be fully protected.
The Chancellor, Alistair Darling, is expected to tell business leaders in London the move is part of a new system designed to shield much larger sums. Chancellor Alistair Darling told the BBC that this was the first stage of a wider process to reform the system that protects UK savers.
It is thought he will announce that protection will be extended to £100,000 in the next parliamentary session. New legislation could protect savings of up to £100,000 and specially protect savers' assets should a bank go bust.
Under the old Financial Services Compensation Scheme, savers have been given a guarantee for 100% of their first £2,000 of their savings, and 90% of the next £33,000. This would leave them with just £31,700 of their savings if a bank did go bust. Under the old Financial Services Compensation Scheme, savers were given a guarantee for 100% of their first £2,000 of their savings, and 90% of the next £33,000. This would leave them with just £31,700 of their savings if a bank went into administration.
But the Association of British Insurers has warned that a much more generous savings guarantee scheme could distort the savings market, drawing people towards cash savings and away from investment products. This was not enough to calm nerves when UK bank Northern Rock had to go to the Bank of England for an emergency loan.
Thousands of savers queued outside Northern Rock branches or went online and withdrew several billion pound over just a few days - until the Treasury stepped in and guaranteed all their savings.
No unlimited guarantee
Mr Darling told BBC Radio 4's Today programme that using administrative powers he could ensure that 100% of the first £35,000 of savings will be protected straight away.
During the second stage of the reform process, he hoped to "separate savers money from the rest of a bank's assets, so that savers' money is as much protected as possible", Mr Darling said.
To do this, though, the government needed to go through a process of consultation with the banking industry, followed by new legislation.
The chancellor, however, ruled out an unlimited protection of savings.
He said the government would study savings protection schemes around the world and indicated that the government might aim to protect savings up to around £100,000.
'Market distortion'
The Association of British Insurers has warned that a more generous savings guarantee scheme could distort the savings market, drawing people towards cash savings and away from investment products.
BBC political correspondent James Hardy said that Mr Darling was stepping up efforts to restore public confidence in the banking system after Northern Rock's near-collapse.BBC political correspondent James Hardy said that Mr Darling was stepping up efforts to restore public confidence in the banking system after Northern Rock's near-collapse.
Previously, the chancellor had guaranteed protection for Northern Rock's savers, but the new guarantee applies to every bank and building society.Previously, the chancellor had guaranteed protection for Northern Rock's savers, but the new guarantee applies to every bank and building society.