As announced on 3 July, the existing level of deposit protection of £85,000 will change to £75,000 after 31 December 2015.
Depositors who are contractually tied into products with balances above £75,000 (either currently or at product maturity) will be able to request to withdraw funds between the old and new limits without penalty, charge or loss of interest.
Depositors will be able to request withdrawals until 31 December 2015. Firms are not required to action requests until 1 October 2015 but will need to return funds to depositors within two months of the request or by 31 January 2016 – whichever is the earlier date. Firms cannot require depositors to close an entire account unless the funds are placed into a new product with similar terms.
The rules also clarify that depositors should not lose interest accrued at the time of withdrawal, on the amount withdrawn or the remaining amount. Going forward, depositors should not lose interest on remaining funds solely as a result of managing to the limit except when the amount of the remaining deposit would put the deposit into a lower tier of interest rates under the original terms of the product.
Depositors will be permitted to withdraw the excess above the new protection limit that might reasonably accrue when taking into account the accumulation of interest over the term of the product. This means the amount withdrawn can be calculated with reference to the estimated value at maturity subject to a maximum of £10,000.
Where depositors have multiple accounts at the same firm, the firm (rather than the depositor) will decide from which account(s) the withdrawn amounts will be taken. Firms will not be able to require the withdrawal from a transactional account without the consent of the depositor.
Robin Fieth, Chief Executive of the Building Societies Association, commented:
"We might wish that this change wasn't necessary, but understand that under EU law and as a reflection of the strength of the UK economy it is. We welcome that the UK Government has chosen to legislate to give consumers and firms a six-month lead-time. Looking ahead good staff training and consumer communication will be essential to ensure that savers are clear about what is happening."
