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Building society mergers and compensation

On 27 November 2008 we introduced a temporary rule so that building societies which decide to merge can keep a separate Financial Services Compensation Scheme (FSCS) limit for the dissolved society when the merger takes effect.

This rule will be in effect until 30 September 2009. Then, following consultation on wider reforms to the FSCS, we expect to be able to put a permanent rule in place.

This change only applies to mergers between building societies – not banks. This is because the laws that affect building societies and banks are different. If two banks merge they can, if they choose, keep separate authorisations and coverage under the FSCS. Building societies can only have a single authorisation.

What does this mean for customers?

If a merged building society continues to operate the two businesses under separate names, customers who had an account with each of the societies before the merger will be entitled to the same level of coverage after the merger. So between their two accounts they will have a total potential coverage of up to £100,000 (up to £50,000 for each of the accounts).

What about new accounts?

Customers who open accounts after the merger will only be entitled to total compensation of up to £50,000.

This is because customers who made deposits before the merger may not have known it would happen and may result in a lower overall level of FSCS coverage on their savings. They may also have accounts for which they would have to pay a penalty to withdraw their savings.

Customers who make deposits after the merger will be aware it has happened and can take this into account when deciding where to put their money.

Which building societies does this affect?

It is up to merging building societies to decide whether they will use the rule when they merge into a single society. When a merger takes place we will update our list of UK banking and savings groups to show which societies are affected. This will include the date the merger took effect and the names under which the separate limits apply.

More information