Savers to have deposit guarantee reduced by £10,000 -BoE

New plans outlined by the Bank of England will see the Financial Services Compensation Scheme (FSCS), which guarantees £85,000 of an individual’s savings if their bank goes bust, reduced to 75,000.

The new rules will come into force from 1 January next year, and, according to the announcement, is the result of the growing strength of the pound against the embattled euro.

The compensation scheme is run under a European directive, which sets the limit at €100,000 per person per institution across the whole of the European Union.

But the precise sum in pounds for the next five years is based on exchange rates on 3 July.

The move to reduce the allowance on account of the beleaguered euro has been slammed by people across the financial industry with one source describing the level of anger as “extraordinary” and a senior MP branding it “absurd”.

Tory MP Andrew Tyrie said the whole scheme was “defective”.

The chairman of the Treasury Select Committee added: “It is absurd that the 16 per cent depreciation of the euro largely brought about by the crisis in the eurozone in general, and the Greek crisis in particular, should be forcing a reduction in the level of protection available to UK depositors.”

“It makes no sense to fix deposit guarantees….to a volatile variable like the exchange rate,” he added.

The euro has fallen significantly against the pound this year, partly because of the crisis in Greece, with sterling currently trading at €1.40, close to its highest level since 2007.

Mt Tyrie said he would be writing to the chancellor to demand a change.

“This will be a massive blow to savers,” said

Meanwhile, Anna Bowes, director of the independent website, Savings Champion, said: “It will also be an administrative headache, as savers will need to find new homes for their money.”

The Treasury said the change would have been implemented now, but it was delaying it until January to give the public a chance to adjust to the lower level of protection.

The new limit of £75,000 will still protect more than 95 per cent of consumers, the FSCS said.

FSCS chief executive, Mark Neale, said: “People have six months to get ready for the change, if necessary.”

The compensation scheme applies to those with accounts in banks, building societies and credit unions.

The level will not be reviewed for a further five years.