Protection for bank accounts with up to £1m

A COMPENSATION scheme that protects current account holders if their bank goes bust has been extended to cover people with temporarily large amounts of cash.

The change – which could benefit hundreds of thousands of people – has been hailed by consumer groups.

It will help those who have just sold a house, newlyweds, divorcees, or people who have received an inheritance, redundancy, insurance or compensation payouts.

Until now, the Bank of England’s Financial Services Compensation Scheme, which was launched in December 2001, has only protected account holders’ first £85,000.

But the limit is being extended to cover people who have up to £1million in their account for up to a maximum of six months.

Richard Lloyd, executive director of consumer group Which?, said: ‘Proper protection for temporary high balances is a welcome move that will give more people greater confidence if their bank goes bust.’

But he added that the scheme should be increased even further. ‘We also want the FSCS to cover individual brands which people recognise, instead of banking groups, and for its coverage of income drawdown products to be extended, to keep up with the new pension reforms.’

A Bank of England spokesman said: ‘Temporary high balances cover will be available for a six-month period from the date on which the money is transferred into their account, or the date on which the depositor becomes entitled to the amount, whichever is later.’