Savings compensation limit goes up.

With interest rates so low it's not very often that savers get good news but the increase in the savings compensation scheme limits from £50,000 to £85,000 from December 31st is to be welcomed.

This means that if a bank or building society goes bust in most cases savers will be eligible for up to £85,000 in compensation from the Financial Services Compensation Scheme (and up to £170,000 is protected if it's held in a joint account). I say 'in most cases' because there are some non UK banks that are members of their own country's compensation scheme which may pay slightly different amounts.

Not only is the compensation limit rising but there are other improvements as well. Payouts will be faster with many receiving compensation within seven working days. Those who can't be compensated within seven days will get their money within 20 days.

And if you have both a mortgage (or other debt) and savings with the same bank or building society and it fails, you'll now recieve your savings compensation in full. Previously the amount you owed would have been deducted from your savings first. It wasn't exactly fair - it's not likely you'd have been planning to pay off your mortgage in one fell swoop - and it would have undoubtedly been a bit of a shock for those savers who were also borrowers.

So, with all that good news there has to be some bad news, right? There is. What hasn't been changed by the Financial Services Authority is the basis on which the compensation limits apply. So these new, higher limits don't necessarily mean you can have £85,000 in a bank or building society and be protected by the compensation scheme, they only mean that you can have up to £85,000 in a bank or group of banks depending on how they're authorised by the FSA.

So, to take an example, NatWest, which merged with RBS some time ago has its own banking licence, as does RBS. This means if you have savings with NatWest and RBS you're protected for up to £85,000 in each bank. However, Halifax, which merged with Bank of Scotland around a decade ago, share a banking licence. That means the £85,000 limit applies to savings in both the Halifax and the Bank of Scotland.

In fact, Bank of Scotland's authorisation also covers Birmingham Midshires, Saga, the AA and Intelligent Finance so your £85,000 limit would be split between accounts you had with any or all of these organisations.

And in another change, whereas savers with building societies that had merged in the last couple of years had dual protection (they could claim up to £50,000 from each building society), that has now been reduced. The new limit - post December 31st - is £85,000 spread between the building societies that have merged. Confused? You're not the only one.

The changes to the compensation scheme do mean that banks and building societies now have to tell customers how they are authorised and whether they are part of a larger group (worryingly until the start of this year it was information that could be pretty hard to come by) but I don't think that's good enough.

For savers to have confidence in the compensation scheme it needs to be easy to understand and easy to explain. At the moment - despite the recent improvements - our own savings compensation scheme is neither.