In a significant move for UK savers, the official protection limit for deposits held in banks and building societies is set for a major increase. From 1 December, the Financial Services Compensation Scheme (FSCS) will safeguard up to £120,000 per person, per authorised firm.
A Substantial Boost for Financial Security
This change marks a substantial 41% rise from the current £85,000 limit and is higher than the initially proposed £110,000. The Bank of England's Prudential Regulation Authority (PRA) confirmed the new threshold, citing consultation feedback and the latest inflation data as key reasons for the larger-than-expected hike. This is the first increase to the protection limit in eight years.
Sam Woods, the PRA chief executive, stated that the new maximum limit "will help maintain the public’s confidence in the safety of their money." Should a bank, building society, or credit union fail, the FSCS will typically reimburse eligible customers within seven days.
Enhanced Protection for Major Life Events
The update also brings good news for those experiencing significant financial events. The protection for "temporary high balances" is being raised from £1 million to £1.4 million.
This covers large sums that land in an account due to specific life events, such as:
- Selling a main residence
- Receiving an inheritance
- Insurance or personal injury payouts
- Retirement or redundancy settlements
This enhanced protection lasts for up to six months. It is important to note that money from the sale of a second home or a buy-to-let property is not covered under these specific rules.
Broader Implications and Market Context
The timing of this change is particularly interesting. The new £120,000 limit comes into effect just five days after the Chancellor's Autumn Statement on 26 November. There has been widespread speculation that Rachel Reeves may reduce tax breaks on cash Isas to encourage investment in British companies and the stock market.
This has already influenced savers' behaviour, with the latest Bank of England data showing £5.8 billion poured into easy-access accounts and an extra £2.4 billion into cash Isas in September alone. The higher FSCS limit may further encourage wealthier consumers to hold more cash in savings accounts, a potential contrast to government aims.
However, it's crucial to maintain perspective. For millions in the UK, this limit is a distant concern. A recent Financial Conduct Authority report revealed that in 2024, 10% of UK adults had no cash savings, and for the 90% who did, the median amount held was between just £5,000 and £6,000.
