Banks must "prominently display" what compensation arrangements apply to deposits from August

Under the new rule, which comes into force from 31 August this year, banks must outline the maximum amount that will be protected and whether the UK's Financial Services Compensation Scheme (FCSC) will apply. UK branches of foreign banks from within the European Economic Area (EEA) must state that these customers are not covered by the FSCS, but must instead specify which national scheme will provide protection.

"Customers need to feel confident about their money and to do this they need to know what the compensation limits are and which scheme would provide cover in the event of a bank, building society or credit union failure," said FSA director Andrew Bailey. "Too many people assume that because their branch is located on a local high street in the UK, they are covered by the FSCS. This is not true for UK branches of EEA banks where the home country's deposit guarantee scheme applies."

Banks will have to display a sticker or poster in their branch window, along with a sticker at the cashier's window or desk and a further poster in a prominent position inside. They will also have to display the notices on their websites. The FSA has published a policy statement detailing its prescribed wording for the notices.

The FSCS can pay compensation to eligible customers of financial firms including banks, building societies, credit unions, insurers, fund managers and intermediaries if the firm is unable to pay claims against it. It is funded by levies paid by over 16,000 participating firms.

Eligible customers with banks incorporated in the UK, including UK incorporated subsidiaries of foreign banks, are covered by the FSCS up to a limit of £85,000. This limit applies to the customer's combined deposits with that firm, or with that firm and other firms which are part of the same group. The FSCS also covers deposits with banks incorporated outside of the EEA which are authorised to accept deposits in the UK.

Customers with banks based in the EEA which operate in the UK as a branch are protected under the deposit guarantee scheme provided by that bank's home country up to a value of €100,000. These customers are not covered by the FSCS. The EEA includes the 27 EU member states plus Iceland, Norway and Liechtenstein.

FSCS chief executive Mark Neale warned that some banks needed to "do much more to provide clear, accurate information" about the protection the scheme provides to customers. "This is essential to building consumer confidence, and is not limited to deposits," he said.

"The banking crisis shows how important it is for consumers to have clear information about FSCS protection," he said. "We never again want to witness the run on a bank because people do not know their money is protected."

He added that he hoped banks would "go the extra mile" in building consumer awareness of the scheme.