Extra saver protection offered when building societies merge

Friday, 28 November 2008 11:00

UK savers are to get extra savings protection if their building society mergers with a rival.

Under current Financial Services Compensation Scheme (FSCS) rules the first £50,000 of savings are protected in each bank or building society.

However, if a customer has cash in two separate institutions and they merge the two buckets of cover equalling £100,000 cover become a single £50,000 protection.

However, new rules brought in by the Financial Services Authority allow savers to keep the higher level of protection if the new merged firm still trades under two separate names.

Under current laws, if two building societies merge they must become a single entity - but two banks can merge and still retain some separation.

Jon Pain, FSA retail markets managing director, said: "The exception we are introducing today to our compensation rules will allow a society which merges with another, and which continues to operate under its former name, to continue to have separate FSCS deposit limits for the pre-merger account holders of the business.

"Following mergers this will help existing savers with the societies who want to keep below the deposit protection limit and also reduce withdrawals from the successor society driven purely by compensation considerations on the part of savers."

A number of building societies are now looking at merging.

Nationwide is to merge with both Cheshire and Derbyshire building societies next month.

Yorkshire Building Society intends to merge with Barnsley Building Society.

Britannia Building Society and the Co-operative Bank are also in discussion about a possible link-up.

Graham Beale, chief executive of Nationwide said: "A number of customers of both the Cheshire and Derbyshire who have savings across the three societies raised concerns about the limits of the Financial Service Compensation scheme.

"We have been working hard with the regulator to come up with a solution that works for members of merged societies and are delighted that we can now ease customers' concerns by announcing today that existing customers in Nationwide and either or both - Cheshire and Derbyshire - will, post merger, have separate cover for the maximum amounts invested in each of the three organisations."

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