UK Savings Protection Limit Increase

UK Savings Boost as Protection Limit May Rise to £110,000

Consumer Discretionary

a day agoPWG Publications

Introduction to the Proposed Increase

In a move designed to bolster confidence in the UK's financial system, the Prudential Regulation Authority (PRA) has proposed increasing the deposit protection limit under the Financial Services Compensation Scheme (FSCS) from £85,000 to £110,000. This change, if approved, would take effect on December 1, 2025, for any firm failures occurring on or after that date. The proposal is part of a broader consultation aimed at enhancing depositor protection and aligning it with inflation since the limit was last revised in 2017.

Why Raise the Limit?

Raising the savings protection limit is essential for maintaining depositor trust and confidence in banks, building societies, and credit unions. Consumer price inflation has eroded the real value of the current £85,000 limit, making it less effective as a safeguard. By increasing the limit, the PRA aims to ensure that deposits remain protected in real terms, thereby supporting economic growth and stability in the financial sector.

Benefits for Savers

The proposed increase offers several benefits to savers across the UK:

Enhanced Protection: With the limit rising to £110,000 per person per institution, more savers will feel secure about keeping larger sums in their accounts, knowing they are fully covered in case of a bank failure.
Joint Accounts: Joint account holders would see their protection limit double to £220,000, providing added peace of mind for couples or business partners managing shared finances.
Temporary High Balance Claims: The limit for certain temporary high balance claims (such as those resulting from home purchases or insurance payouts) might increase from £1 million to £1.4 million, further enhancing protection during significant life events.

Industry Reaction

The proposal has been welcomed by various stakeholders in the financial industry:

Which?: Rocio Concha, Director of Policy and Advocacy at Which?, has described the decision as "sensible," highlighting that strong consumer protections and economic growth are intertwined.
UK Finance: Eric Leenders, Managing Director for Personal Finance at UK Finance, sees the review as timely, given that the current limit was set in 2017, and looks forward to collaborating with the PRA on the consultation.
FSCS: Martyn Beauchamp, CEO of the FSCS, emphasizes that depositor protection is crucial for maintaining trust in financial services, which in turn supports stability and growth.

The Role of the FSCS

The FSCS has played a critical role in safeguarding deposits since its establishment in 2001, paying out over £20 billion in compensation, primarily following the 2008 financial crisis. Its role includes covering deposits in current and savings accounts up to the specified limit if a financial institution fails.

How the FSCS Works

Here's a brief overview of how the FSCS protects deposits:

Eligibility: The FSCS typically covers retail deposits, including those in current and savings accounts held with UK-authorised banks, building societies, and credit unions.
Limit: The current limit is £85,000 per person per institution, which the PRA proposes to increase to £110,000.
Temporary High Balance Claims: Covers temporary increases in deposits, such as those from property sales or insurance payouts, up to a specified limit.

Next Steps for the Proposal

The consultation period for the proposed changes is open until June 30, 2025. The PRA expects to confirm the outcome in November 2025, with any changes requiring approval from HM Treasury. If approved, the new limits would apply to firms that fail from December 1, 2025.

Key Points About the Proposal

Consultation Period: Responses are due by June 30, 2025.
Expected Outcome: The PRA will announce the results of the consultation in November 2025.
Implementation: Changes, if approved, would take effect from December 1, 2025.

Conclusion

The proposed increase in the savings protection limit to £110,000 reflects a proactive approach by regulators to ensure that depositor protections keep pace with economic realities. This move aligns with broader efforts to maintain confidence in the UK's financial system, supporting economic growth while safeguarding consumers' financial security.

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