Ten years on from the collapse of Lehman Brothers, British savers are still feeling the effects of the financial crisis. In the wake of the banking turmoil, many moved their money to government-backed institutions such as National Savings and Investments (NS&I), which reported inflows of £26bn in 2008-09. Today, savings protection has improved, but interest rates remain low.
The Financial Services Compensation Scheme (FSCS) now guarantees up to £50,000 per person, per institution, a significant increase from the £31,700 equivalent protection available during the run on Northern Rock in 2007. Mark Neale, FSCS chief executive, noted that it was "rational" for customers to queue outside Northern Rock given the limited protection at the time.
The government responded by raising the limit to £35,000, then to £50,000 a year later. By mid-2009, NS&I announced that the flight to safety was over. The FSCS has since become more efficient, now returning deposits from failed banks within a week, compared to weeks previously.
However, despite better protection, savers have suffered from low interest rates. Those who once enjoyed rates of 5% or more now receive a fraction of that. The banking landscape has also transformed, with the rise of challenger banks and mobile banking, but this has brought branch closures and increased cyber-attack risks.
The FSCS was tested early on with the rescue of Bradford and Bingley in 2008 and the failure of Icelandic banks, protecting four million savers at a cost of £20bn. Most of that cost has since been recovered. While the safety net is stronger, savers today face new challenges, from low returns to digital threats.
