FSCS Protection Rising to £120,000

What is FSCS?

The Financial Services Compensation Scheme (FSCS) is the UK's deposit protection scheme, established by the government to protect consumers' savings. When a regulated financial institution fails and cannot repay deposits, FSCS automatically intervenes to compensate savers.

Key Features of FSCS Protection

• Automatic Coverage: No application or fees required - all eligible deposits are automatically protected
• Fast Compensation: Typically paid within 7 working days of bank failure
• 100% Protection: Full coverage up to the limit
• Wide Coverage: Includes current accounts, savings accounts, fixed deposits, and Cash ISAs

Background to the Limit Increase

The FSCS deposit protection limit adjustment is based on EU deposit guarantee directives and UK inflation levels. The last adjustment was in 2015, when the limit was set at £85,000 based on the €100,000 equivalent.

Real Impact of the New Limit

1. Stronger Deposit Protection

The new £120,000 limit represents a 41% increase over the old £85,000 limit, which means:

• You can keep more funds in a single bank while maintaining full protection
• Less need to split deposits across multiple banks
• Reduced complexity in managing multiple accounts
• Better alignment with UK household average savings

2. Impact on Different Deposit Amounts

Important Considerations

1. Protection Limit is "Per Bank"

The £120,000 limit applies to each independent bank, not your total savings. For example:

• £120,000 at HSBC → Fully protected ✅
• £120,000 at Santander → Fully protected ✅
• £150,000 at HSBC → Only £120,000 protected, £30,000 unprotected ⚠️

2. Joint Account Protection

Joint accounts enjoy separate protection limits:

• Personal Account: Up to £120,000 protection per person
• Joint Account: Additional £120,000 protection (split equally, £60,000 each)

Example:

Mr. Zhang and Mrs. Li each have personal accounts at HSBC, plus a joint account:

• Mr. Zhang's personal account: £120,000 (fully protected ✅)
• Mrs. Li's personal account: £120,000 (fully protected ✅)
• Joint account: £120,000 (fully protected ✅, £60,000 each)
• Total protection: £360,000

3. Temporary High Balance Protection

In certain special circumstances, FSCS provides 6-month temporary high balance protection. From December 1, 2025, the temporary high balance limit increases from £1,000,000 to £1,400,000:

• Proceeds from residential property sale
• Insurance compensation
• Inheritance
• Pension lump sum withdrawal
• Divorce settlement
• Disability compensation

Important Note: Temporary high balance protection only applies to funds from the above major life events and is valid for 6 months after deposit. After 6 months, it reverts to the standard £120,000 limit.

Practical Examples

Example 1: Single Person with £100,000

Before December 1, 2025:

• Needs to split across 2 banks for full protection
• £85,000 at Bank A + £15,000 at Bank B
• Managing multiple accounts

After December 1, 2025:

• Can keep all £100,000 at one bank ✅
• Fully protected
• Simpler management

Example 2: Couple Maximizing Protection

A married couple with £300,000 to save:

• Person A personal account at Bank 1: £120,000
• Person B personal account at Bank 1: £120,000
• Joint account at Bank 1: £60,000
• Total at one bank: £300,000 fully protected ✅

Example 3: Home Sale Temporary High Balance

You sold your home for £800,000 on December 15, 2025:

• Deposit the £800,000 at your bank
• Protected under temporary high balance (up to £1,400,000) ✅
• Protection valid for 6 months (until June 15, 2026)
• After June 15, 2026, reverts to standard £120,000 limit
• Recommendation: Find permanent investment solution within 6 months

Action Plan Before December 1, 2025

Step 1: Review Your Current Deposits

List all your UK bank accounts and their balances:

• Bank name and account type
• Current balance
• Whether it's a personal or joint account

Step 2: Check Banking Group Relationships

Visit the FSCS website to check if your banks belong to the same group:

• Example: Lloyds, Halifax, Bank of Scotland are the same group
• These banks share a single £120,000 limit

Step 3: Calculate Your Protection Coverage

For each banking group, calculate:

• Total deposits at that group
• Whether it exceeds £120,000
• Amount potentially unprotected

Step 4: Rebalance If Needed

If you have amounts exceeding the limit at a single bank:

• Consider transferring to another independent bank
• Check for better interest rates
• Ensure each bank is FCA regulated

Step 5: Plan for Major Life Events

If you're planning a home sale, inheritance receipt, or pension withdrawal:

• Understand temporary high balance protection
• Plan where to deposit large amounts temporarily
• Create a plan for permanent investment within 6 months

Frequently Asked Questions (FAQ)

Q1: When does the new limit take effect?

A: The new £120,000 limit takes effect on December 1, 2025. All FCA-regulated banks and building societies will automatically apply it.

Q2: Do I need to do anything to get the new limit protection?

A: No action required. FSCS protection is automatic - as long as your deposits are in a regulated financial institution, they're automatically protected.

Q3: Are ISA accounts also covered by £120,000 protection?

A: Yes. Cash ISAs, like regular savings accounts, are covered by FSCS protection and count toward the same bank's £120,000 limit.

Q4: If a bank fails, how quickly will I receive compensation?

A: FSCS aims to pay compensation within 7 working days of a bank failure. In most cases, compensation is transferred directly to your designated bank account.

Q5: Are foreign currency deposits also protected?

A: Yes. Foreign currency deposits are also covered by FSCS protection, but the limit is calculated in pounds sterling. Compensation is converted to pounds using the exchange rate on the day of bank failure.

Q6: Are business accounts protected?

A: Small business and charity deposits are also covered by FSCS protection with the same £120,000 limit. However, large enterprises may not qualify - check the FSCS website for confirmation.

Q7: What is temporary high balance protection? How do I get £1,400,000 protection?

A: If you temporarily hold large amounts due to major life events (such as home sale, inheritance, pension withdrawal), you can enjoy up to £1,400,000 protection for 6 months after deposit. This temporary high balance protection is automatic and requires no application. After 6 months, it reverts to the standard £120,000 limit.

Summary

The FSCS deposit protection limit increase to £120,000 is significant good news for savers, providing stronger financial security. However, understanding the details and limitations of protection is equally important, especially:

• ✅ Each independent bank has a £120,000 limit
• ✅ Banks in the same group share the limit
• ✅ Joint accounts have separate protection
• ✅ Special circumstances qualify for temporary high balance protection (up to £1,400,000 for 6 months)

We recommend regularly reviewing your deposit distribution to ensure all funds are within FSCS protection. Using the SavingsAI tool can help you easily manage and optimize your savings allocation.