Bank and building society customers are to get £10,000 less compensation if their financial institution goes bust.

Currently, people's deposits are protected by up to £85,000 if their bank, building society or credit union goes bust under the Financial Services Compensation Scheme (FSCS).

But the Bank of England has said this level of protection will be only maintained until December 31 - and from January 1 it will fall to £75,000.

One financial expert described the change, which is a requirement of a European directive, as "bonkers" and said it was another blow for savers, who have suffered years of poor returns on their cash in the low interest rate environment.

The FSCS deposit protection limit is set under the European deposit guarantee schemes directive and is recalculated every five years. It is set at a sterling amount equivalent to 100,000 euro.

The current compensation limit was set in December 2010, based on the sterling equivalent of 100,000 euro at the time.

The pound has strengthened against the euro recently as the crisis in Greece has unfolded.

Danny Cox, chartered financial planner, Hargreaves Lansdown, said: "This is absolutely bonkers. Savers are already suffering rock bottom interest rates, and now to add insult to injury the safety of that cash is being undermined.

"The popularity of both NS&I pensioner bonds and premium bonds demonstrates savers care as much about safety as they do about rates. Savers need to have the comfort of knowing they are protected in the event of a bank or building society collapse."

The new £75,000 limit has been set - but the Treasury has put legislation in place to maintain the existing £85,000 limit until December 31, to give people and small firms time to adjust. When the new limit starts on January 1 it will again remain in place for five years.

Consumer group Which? also raised concerns that some people may unwittingly leave thousands of pounds at risk - and urged banks make sure their staff are properly trained to tell their customers about the new limit.

Which? executive director, Richard Lloyd, said: "A reduction in the compensation scheme limit means people could unwittingly leave thousands of pounds at risk if they're not made aware of the new rules.

"We've consistently found bank staff have an extremely poor knowledge of the scheme so, with people's savings soon to have less protection, we expect all banks to ensure staff are properly trained and proactively communicate these new rules to customers."

The FSCS said that more than 95 per cent of consumers will still be protected under the new compensation limit.

The directive also extends deposit protection to some categories of depositors that were not previously protected by the FSCS, such as large corporates. The new £75,000 limit will apply to these newly-protected depositors.

A consultation is taking place on rules to help manage the changes for customers who are currently tied into products with balances above £75,000. The consultation ends on July 24.

Pending the result of the consultation, the intention is to allow depositors to withdraw funds between the old and new limits without penalty from August 1 until December 31 if they experience a decrease in deposit protection as a result of the limit change, the Bank said.

Another change from today means that people with temporarily high balances, perhaps due to a windfall, will be covered up to £1 million for six months from the date on which the money is transferred into their account, or the date on which the depositor becomes entitled to the amount, whichever is later.

This will ensure that customers are protected when they deposit funds over the limit as a result of specified events, including following a house sale or funds received from a "life event" such as a divorce settlement or inheritance.

Mark Neale, chief executive of FSCS, said: "People have six months to get ready for the change, if necessary. What won't change is the service FSCS provides to the people using banks, building societies and credit unions. We will continue to be there for them."