Consumers 'should get safe account'

Consumers 'should be able to opt for low returns on Government protected savings'
12 April 2012

Consumers should be able to opt for low returns on their savings in exchange for having their money guaranteed by the Government, a report has said.

A new type of Safe Haven account should be launched under which people's savings would be 100% safe even if the bank that held them failed, according to the Future of Banking Commission.

The money would be invested in safe assets, such as Government bonds, but consumers would receive low returns on it, in exchange for having it protected.

The Commission said the account would be ideal for people who temporarily had large sums of money deposited with banks, for example after they had sold a property or received a divorce lump sum.

But it added that the account could also be used by other people who prioritised the security of their money over the returns they could earn on it.

Under the current regime people have only the first £50,000 protected by the Financial Services Compensation Scheme if a bank fails, rising to £100,000 for joint account holders.

The Commission, which was set up by consumer group Which?, called for a "profound reform" of the UK's banking system.

It said the structure of banks needed to be changed so that their failure did not hurt the economy, while they should also have 'living wills', setting out what should happen if they ran into problems.

It also proposed that banks' boards, and not the regulator, should take primary responsibility for their management and stability.

It added that transparency could be improved through a combination of reform to accounting rules and changes to the way credit rating agencies operate, while there should also be a separation of investment advice from the execution of trading.

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