New ISA protection rules adopted
New legislation could prevent ISA savers with money in collapsed banks from losing out on interest that would have been accumulated had their provider not gone bust.
The Treasury announced plans to issue these unlucky savers with fresh ISA allowances which can be deposited with another provider.
Savers are allowed to deposit a maximum of £10,680 into their ISA account this tax year and although they would get some if not all their money up to £85,000 back through the Financial Services Compensation Scheme (FSCS), up until now they were not allowed to reinvest the money in another ISA - therefore missing out on generating interest on their savings.
The regulation change comes three years after some 300,000 UK savers lost an estimated £4 billion in deposits when Icelandic bank Icesave collapsed in 2008.
Under FSCS rules, up to £50,000 held in investment accounts is protected, as are ISA cash accounts in Europe to the tune of ?100,00. In the UK, the limit is capped at £85,000 for five years, while joint-account holders can claim up to £170,000.
Copyright © Press Association 2011
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