The Financial Services Compensation Scheme is now offering cash refunds to savers carrying debts at the same institution.
Last year, a person with savings and a mortgage at the same bank saw their cash confiscated if there was outstanding debt. Customers whose mortgage exceeded their savings did not get a cash refund if their bank or building society defaulted.
But now offset mortgage customers – that’s when savings counterbalance the homeloan debt so that it attracts less interest – receive up to £85k in cash before 'set off' rules apply.
Savers with cash remaining after the £85k has been repaid will see the surplus used to reduce mortgage debt, which is then inherited by another lender.
So a borrower with a mortgage of £400,000 and savings of £100,000 would get £85,000 from the FSCS, a mortgage debt reduction of £15,000.
An FSCS spokesperson said that the new system is meant to 'help speed up payment' and ensure that if a bank defaults, savers will not lose liquidity.