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The British deposit guarantee scheme will be cut back from next year, according to the Telegraph. Currently, savings of up to £85,000 per person per bank are covered by the guarantee scheme, but from 1 January 2016 this will be reduced to £75,000.
The guarantee scheme protects savers against the collapse of a bank, so that savers are less inclined to withdraw their money. According to its proponents, this benefits the stability of the financial system, as it reduces the chance of a bank run escalating. Since the outbreak of the financial crisis, this limit has been increased in stages until finally in 2010 an amount of £85,000 was set.
At the time, this amount was aligned with the European guarantee scheme of €100,000, but due to the depreciation of the euro, the British government believes a limit of £75,000 is more appropriate.
Many British savers consider this to be an unreasonable argument, because they cannot help the fact that the euro has depreciated so sharply against the British pound. "It is absurd that a 16% fall in the value of the euro, mainly caused by the European debt crisis and the crisis in Greece in particular, determines the extent to which British savings accounts are protected", argues Andrew Tyrie of the Treasury Select Committee.
Savers have become accustomed to being protected in the event of a bank failure, while that is actually something that has happened in recent years. Until 2007, only the first £2,000 per person per bank was covered, supplemented by 90% of the amount above that up to a maximum of £39,000. In the Netherlands, the guarantee on savings was limited to €38,000. So there has been more 'moral hazard' in the system, which has made savers less aware of the risks.
With the collapse of the Northern Rock bank in the spring of 2008, the government decided to fully guarantee all savings up to £35,000. This was supposed to reassure savers, but then the limit was raised twice. At the end of 2008, the cover was increased to £50,000 and in 2010 the amount was brought into line with the €100,000 that was introduced in the European Union at that time. At the exchange rate at the time, the insured limit on UK savings accounts was raised to £85,000.
Savers in special situations, such as a divorce, inheritance or purchase of a home, where there is a temporary high amount in the bank account, are protected for a period of six months up to an amount of £1 million in the event that the bank where the money is parked fails.
The introduction of a deposit guarantee scheme offers a false sense of security, because the guarantees are issued jointly by the banks. If a large bank collapses or many banks get into trouble at the same time, the guarantee can in all likelihood no longer be given. Savers should be aware of this risk and would therefore be wise to spread their assets across several banks. In the case of very large assets, it is also advisable to hold a part in foreign currency and buy gold.
