FROM the start of December, the FSCS (Financial Services Compensation Scheme) will increase to £120,000.
UK bank customers will benefit from an increase to the maximum amount they would be reimbursed for if their bank were to fail, a measure one financial expert described as “a sensible, if long overdue adjustment that better protects ordinary savers”.
But another expert said it hasn’t gone far enough, as the Temporary High Balance limit still doesn’t cover business sales.
The Prudential Regulation Authority (PRA) has today confirmed the deposit protection limit, which applies to the Financial Services Compensation Scheme, will protect up to £120,000 of a depositor’s money should their bank, building society or credit union fail.
This increases the limit from the current £85,000 which was set in 2017. It is also more than the previous PRA proposal of £110,000, which has been changed in light of consultation feedback and to reflect the latest inflation data.
On 1 December an increase in the limit applicable to certain temporary high balance claims will also come into force. This limit is used for qualifying life events like buying or selling a house and payouts from insurance policies and will increase from £1 million to £1.4 million.
Sam Woods, Deputy Governor for Prudential Regulation at the Bank of England and CEO of the PRA, said: “This change will help maintain the public’s confidence in the safety of their money. It means that depositors will be protected up to £120,000 should their bank, building society or credit union fail. Public confidence supports the strength of our financial system.”
Tony Redondo, Founder at Newquay-based Cosmos Currency Exchange, welcomed the move: “This is a sensible, if long overdue, adjustment that better protects ordinary savers while maintaining confidence in the banking system. The main criticism is that the £85,000 limit has remained unchanged since 2017, meaning real protection eroded by roughly 30% due to inflation. The increase to £120,000 restores this value.
“The stated goal of maintaining public confidence is legitimate, as deposit insurance is fundamentally about preventing bank runs. However, future adjustments should be more regular. Why isn’t there automatic indexation, as other countries have implemented? The announcement also doesn’t clarify whether joint accounts receive £120,000 per person or in total.”
Antonia Medlicott, Founder & MD at London-based Investing Insiders, is concerned it hasn’t been raised enough: “It’s about time the FSCS limit, set in 2017, was updated, although it still doesn’t go far enough. When you account for inflation, £85,000 in 2017 is worth £248,674 today.
“That means savers’ money is – in real terms – far less protected, even with this uplift, than it once was. It’s a scheme that provides security and peace of mind for millions.
“It needs to reflect the significant rise in inflation we’ve all experienced since 2017.”
Scott Gallacher, Director at Leicester-based Rowley Turton, said: “This increase to £120,000 is long overdue, but very welcome. The previous £85,000 limit was set back in 2017 and had been badly eroded by inflation, as anyone doing their weekly shop will know.
“But there is still unfinished business. The FSCS Temporary High Balance limit — which covers people selling their home or receiving inheritances — doesn’t cover business sales and it’s unfair that hardworking small business owners are unprotected simply because they’ve been overlooked.
“Today’s change is a step in the right direction, but the regulator shouldn’t stop here.”
Photo by Moja Msanii on Unsplash
