Millions of people across the UK have been building up significant cash reserves, yet a concerning knowledge gap persists about how much of that money would be safeguarded in the event of a bank collapse. A critical update to the Financial Services Compensation Scheme (FSCS) has now come into force, raising the protection ceiling for savers.
The New £120,000 Safety Net
In a move designed to keep pace with inflation, the Bank of England’s Prudential Regulation Authority has authorised an increase in the FSCS deposit protection limit. The amount covered per person, per authorised UK bank, building society or credit union has risen from £85,000 to £120,000. According to consumer champion MoneySavingExpert, this means you are now entitled to 100% of the first £120,000 back, typically within seven working days, should your financial provider fail.
For couples who hold a joint account, this protection is effectively doubled, offering a substantial £240,000 of cover for shared savings. This change, effective from January 2026, aims to bolster public confidence in the UK banking system following historical periods of instability.
Critical Misunderstandings to Avoid
One of the most common and costly misconceptions is that spreading money across multiple accounts with the same bank automatically increases your protection. This is not the case. The FSCS operates per eligible firm, not per account. Therefore, if an individual holds £120,000 in a current account and a further £120,000 in a savings account with the same institution, only a total of £120,000 is protected, not £240,000.
The situation can become even more complex due to banking group structures. Several major high-street names operate multiple brands under a single banking licence. A prime example is First Direct and HSBC, which share a licence and, consequently, a protection limit. Savers with funds across both brands would still find their total covered amount capped at £120,000.
Temporary High Balances and How to Check
There is important additional protection for those who temporarily hold large sums due to specific life events. The FSCS ‘temporary high balance’ cover has been increased from £1 million to £1.4 million. This applies for a period of six months following events such as receiving proceeds from a house sale, an inheritance, or a significant insurance payout.
It is vital to note that this higher cover is not automatic. The FSCS will require documented proof of the source of the funds if a claim needs to be made. To provide clarity for all savers, the FSCS offers a live online checker tool. By entering your bank’s name and your saved amount, you can see precisely how much of your money is protected. Accuracy is key, so ensure you use the correct financial institution name or its six-digit FRN (Firm Reference Number).
Experts strongly caution that e-money and payment services firms are not covered by the FSCS. Any cash held with these providers will not be eligible for compensation should they collapse. The ultimate beneficiaries of these new rules will be the savers who take proactive steps to verify their protection levels and structure their finances accordingly, rather than making potentially dangerous assumptions about automatic safety.
