Government must not risk distorting the savings market

Commenting on today’s announcement from the Government that it is to consult the financial services industry over increasing the guarantee for deposits held in bank accounts, the ABI’s Director General, Stephen Haddrill, said: “The Northern Rock crisis brought the whole issue of bank deposit protection into very sharp focus. But there is much more to the savings market than bank deposits. The new limit of £35,000 ensures that 98% of people are fully protected. Anything beyond that could encourage reckless investing and be dangerous both for consumers and financial institutions.

“As the Treasury’s discussion paper says, increasing the limit beyond that risks distorting the market for savings and investment products. Many investment products deliver higher returns for consumers than bank accounts, but a high guaranteed limit for deposits may mean that people will not even consider them. The ABI will strongly argue for the deposit account fully guaranteed limit to remain at £35,000, and urges the Government to focus instead on enabling faster payouts from the Financial Services Compensation Scheme in the even of bank failure.”