UK bank customer protection if firm goes bust rises to £120,000

Customers in the UK to Benefit from Increased Deposit Protection

Customers with bank accounts in the UK are set to enjoy a significant increase in the level of protection for their funds in case of a bank or building society collapse. The current deposit protection scheme allows customers to claim back up to £85,000 of their money. However, starting from December, this limit will be raised to £120,000, marking the largest increase since 2017 when the existing limit was established.

According to Martyn Beauchamp, the chief executive of the Financial Services Compensation Scheme (FSCS), this boost in protection ensures that consumers can have peace of mind knowing that their money is safe, up to the new limit of £120,000.

The decision to raise the deposit protection limit to £120,000 was confirmed by the Prudential Regulation Authority (PRA), which oversees UK banks. This increase is higher than the PRA’s initial proposal of £110,000 and reflects the latest inflation data and feedback from consultations, as stated by the Bank of England.

It is important to note that the FSCS protection applies per person, per authorised firm. Some banking groups operate multiple brands under a single licence, meaning that the limit covers the total amount held across all those brands. Customers do not need to take any action as the new limit will be automatically applied.

Sam Woods, deputy governor for prudential regulation at the Bank of England and chief executive of the PRA, emphasized that this change will help maintain public confidence in the safety of their money, ensuring that depositors will be protected up to £120,000 in the event of a bank, building society, or credit union failure.

The increase in the deposit protection limit has been welcomed by consumer group Which?, describing it as a “sensible decision” that boosts consumer confidence in the financial services industry. Rocio Concha, Which? Director of policy and advocacy, highlighted the importance of strong consumer protections in supporting economic growth efforts by the government and regulators.

Eric Leenders, managing director of personal finance at UK Finance, stated that updating the limit to account for inflation is the right move and will facilitate the implementation of these changes. Additionally, the cap for temporary high balances, covering life events such as funds from a house sale or insurance payout, will also increase from £1m to £1.4m for six months.

Rachel Springall, a finance expert at Moneyfactscompare.co.uk, advised consumers to remain vigilant about where they invest their money. She emphasized the importance of recognizing institutions covered by the FSCS and highlighted the newly designed badge to make this protection more identifiable.

The FSCS is funded by a levy on financial firms authorized by the PRA or the Financial Conduct Authority (FCA), ensuring that customers are protected in case of unforeseen circumstances.