Savings deposit protection limit could rise to £110,000

A proposed change to banking regulations could significantly increase the amount of savers' money protected if a bank or building society collapses, up from the current £85,000 to £110,000.

Currently, the deposit protection scheme, operated by the Financial Services Compensation Scheme (FSCS), guarantees up to £85,000 of a customer's savings if a financial institution fails. Under the new proposal, this limit would rise to £110,000 to match inflation.

The Prudential Regulation Authority (PRA), which oversees UK banks, stated that the planned increase reflects the changes in interest levels since the original limit was set in 2017, as consumer prices have increased significantly since then, meaning the current £85,000 protects a lot less than it used to.

Martyn Beauchamp, Chief Executive of the FSCS, said it was important the limit was reviewed regularly to ensure it stayed "appropriate and relevant".

The review could also see the Temporary High Balance protection rise from £1m to £1.4m. This offers temporary protection for large sums of money (above the usual £85,000 FSCS deposit limit) for a period of up to six months from when the money is received following certain life events such as an inheritance, receiving proceeds from a divorce or a life insurance policy and the sale of your main residence.

The plan is now open for consultation, and if approved, the higher protection limit would come into effect from 1 December 2025.

What is the deposit protection scheme?

The FSCS protects 100% of the first £85,000 you have saved in a cash savings account, per UK-regulated financial institution (not per account). So, in simple terms, if your bank, building society or credit union were to fail, the FSCS aims to get any savings up to this amount back to you within seven working days.

Aside from protecting your cash, the FSCS was created to prevent ‘bank runs’ - where many depositors attempt to withdraw their funds at the same time. No bank has enough liquidity to pay back all its deposits at once, so if someone thinks other depositors might withdraw soon, it is rational for them to do it first as a kind of pre-emptive measure which can lead to a cascade of withdrawals that results in a bank run. The existence of deposit insurance serves to break this reasoning.

Since the £85,000 Financial Services Compensation Scheme (FSCS) limit was set in 2010, consumer prices have increased more than 40%, meaning the same £85,000 buys a lot less. Moreover, the total amount of bank deposits has broadly doubled since 2010. In other words, the same limit is providing less insurance today than it did when it was established.

Should the limit be raised?

According to research by the Building Societies Association, the average that a person in the UK has in savings is £16,232 – well below the current level of £85,000.

So, although it sounds like a good idea, in reality it may not actually be of benefit to the majority, as most savers are already well protected, and the extra cost could actually mean that interest rates on offer are reduced to cover this cost.

The scheme is funded by a levy paid by financial services companies that are members of the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), and an increase in the deposit protection will come with an additional cost to the financial institutions.

Added to that, advances in technology means that there are now cash savings platforms, such as our Savers Hub, allowing savers with larger sums to make just one application onto the platform, and then have access to multiple competitive savings accounts that are protected by the FSCS scheme.

Hopefully this will be taken into consideration in the consultation.

Understanding what kind of protections are available to you is key to proper financial planning. With the uncertainty in the global economy right now, it’s more important than ever to seek financial planning advice to help safeguard your future.

If you want to find out more, why not give us a call on 0333 323 9065 or book a free non-committal initial consultation with one of our chartered advisers to find out how can help.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. 

The Financial Conduct Authority (FCA) does not regulate cash flow planning or tax advice.