In welcome news for UK savers, the Financial Services Compensation Scheme (FSCS) protection limit is increasing significantly from December 1, 2025. The Prudential Regulation Authority announced that Britain’s Financial Services Compensation Scheme will protect up to £120,000 of depositors’ money, up from the current £85,000 cap, which was set in 2017. This represents a substantial boost to the safety net protecting your hard-earned savings, but what does it actually mean for you?
Understanding FSCS Protection
The FSCS acts as the UK’s deposit guarantee scheme, protecting your money if your bank, building society, or credit union fails. It’s a crucial safety net that ensures savers don’t lose everything if their financial institution goes bust. The scheme is funded by levies on financial services firms themselves, not by taxpayers, and has protected millions of savers since its inception.
When a financial institution fails, the FSCS automatically compensates eligible depositors up to the protected limit. You don’t need to apply or take any action; the compensation is paid automatically, typically within seven days for most deposits, though complex cases may take longer.
Why the Increase Matters
The jump from £85,000 to £120,000 is more significant than it might initially appear. Officials had proposed increasing the limit to £110,000 earlier this year, but have now gone further (Bloomberg) recognising the changing economic landscape since the last increase in 2017.
Over the past eight years, property prices have risen substantially, inheritance amounts have increased, and many people have accumulated larger savings pots. The £85,000 limit was beginning to feel inadequate for protecting the financial security of ordinary savers, particularly those going through major life events like selling a home or receiving an inheritance.
For someone selling their property and temporarily holding the proceeds in a savings account while searching for their next home, the additional £35,000 of protection could be crucial. Similarly, retirees who’ve accessed their pension tax-free cash or received life insurance payouts now have greater security when parking these funds.
What’s Protected and What Isn’t
It’s important to understand exactly what the FSCS covers. The £120,000 limit applies per person, per financial institution. This means:
- If you have £120,000 in one bank, you’re fully protected
- If you have £150,000 in one bank, only £120,000 is protected – the remaining £30,000 is at risk
- If you have £120,000 across multiple banks, each with different banking licences, all your money is protected
The protection covers standard savings accounts, current accounts, and fixed-rate bonds. However, investments such as stocks, shares, and investment funds are covered under a different FSCS scheme with its own limits and rules.
Banking Licences: The Crucial Detail
One common mistake savers make is assuming that different brand names mean different protection. In reality, what matters is the banking licence. For example, multiple banks might operate under the same banking licence, meaning you’d only have £120,000 protection across all of them combined, not £120,000 per brand.
Halifax, Bank of Scotland, and Lloyds, for instance, operate under the Lloyds Banking Group licence. If you have accounts with all three, you’d have a total of £120,000 protection across them all, not £120,000 in each. Always check which banking licence your accounts fall under – this information is readily available on bank websites and FSCS guidance.
Joint Accounts and Additional Protection
Joint accounts receive separate protection. A joint account held by two people would be protected up to £240,000 (£120,000 per person). This makes joint accounts particularly useful for couples with substantial shared savings.
Additionally, certain temporary high balances receive enhanced protection for up to six months. This includes money from property sales, insurance payouts, redundancy payments, and inheritance. These temporary balances can be protected up to £1 million, providing crucial security during major life transitions.
Strategic Implications for Savers
The increased limit means fewer savers need to spread their money across multiple institutions to achieve full protection. This simplifies financial management and potentially allows you to access better interest rates by consolidating savings.
However, if you have more than £120,000 to save, you should still consider spreading your money across different banking licences. With savings rates currently competitive, there’s little downside to diversification beyond the administrative effort.
Getting Expert Guidance
While the FSCS increase is straightforward, ensuring your overall financial strategy remains sound requires careful consideration. At Bateman Group, we help clients understand how savings protection fits into their broader financial planning, including insurance needs, investment strategies, and retirement planning.
The increased FSCS protection is excellent news for UK savers, providing enhanced security in uncertain times. However, understanding the nuances – from banking licences to joint account rules – ensures you maximise this protection. For personalised advice on structuring your savings and comprehensive financial planning, contact Bateman Group today.
