The fast payout rules, which come into force on 31 December 2010, will mean many individuals and small businesses will receive compensation within a target of seven days, and all payments within 20 days as required under the Deposit Guarantee Schemes Directive. This will greatly reduce uncertainty for consumers.

An additional change is that in future, payouts will be made on a gross basis, which will effectively ring fence the deposits if a depositor has savings and loans with the same firm.

Currently, any outstanding loan or debt held with a firm would have been deducted from the amount of an individual’s or small business’ savings before compensation was paid out. The new rules change this arrangement and ensure that the customer’s savings will be protected to the limit of £50,000 and not used to offset loans.

Consumer awareness of the FSCS will also be boosted by a new rule which comes into force from 1 January 2010, requiring firms to provide information on the existence of the FSCS and level of protection it offers to depositors, as well as proactively informing customers of any additional trading names under which the firm operates.

Hector Sants, chief executive of the FSA, said: “To help underpin confidence in our banking system, individuals and small businesses must feel confident that their money is well protected. The new rules announced today will help deliver that confidence, build on the successful role of the FSCS to date, and aim to further minimise the potential hardship faced by depositors if an institution defaults.

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“The FSA, along with HM Treasury and the Bank of England, have set the FSCS a challenging target of delivering payout in seven days. The systems requirements that the rules introduce for banks are crucial to enable the FSCS to deliver fast payout.”