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An increase to the Financial Services Compensation Scheme (FSCS) deposit protection limit could bring welcome news for some savers later this year.
The FSCS protects savers if a bank, building society or credit union goes out of business. The FSCS deposit protection limit is currently £85,000 per person, per institution, but the Prudential Regulation Authority (PRA) is currently consulting on raising the limit to £110,000.
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The FSCS is the UK’s financial safety net. Set up by the Government in 2001, it protects consumers when financial firms fail. It covers funds held by institutions such as banks, building societies, credit unions, insurance providers, funeral plan providers and investment firms.
The FSCS is free to consumers. Its operations are funded by levies imposed on the authorised financial services firms it covers. The scheme proved especially useful in 2008 when the credit crunch and recession caused several banks, including Bradford & Bingley, Icesave, and Heritable Bank, to go bust.
Icesave in particular, had offered headline-grabbing interest rates on its savings accounts, attracting huge numbers of savers. Although the brand was run by Icelandic bank Landsbanki, it was authorised to operate in the UK and was covered by the FSCS.
More than £4bn was paid back to Icesave account holders alone, representing about a fifth of the £20bn the FSCS paid out in total to over 4 million customers during the financial crisis. Fortunately, subsequent years haven’t required such big compensation claims. In 2023/24 the scheme paid out £423m in compensation to 19,008 customers of failed firms.
If approved, the new limit would come into effect from December 1 2025. This would be the first increase since 2017, when the limit was raised from £75,000 to £85,000. While it’s currently under consultation, the change seems very likely to go ahead.
The move is designed to reflect changes in inflation and rising savings balances, helping to maintain the real value of the protection. An increased limit will particularly benefit the over-50s as many savers in this age group keep a sizeable portion of their retirement pot in cash.
Sam Newton, director at Gravitate Accounting, says: “The raising of the FSCS limit makes a lot of sense. The value of this limit has been eroded by inflation and rising interest rates have encouraged more long-term saving. Increasing the cap to £110k reflects these changes.
“Over 50s are likely to have large and complex balances from pensions, inheritance, or downsizing property. Without this increase, they must split funds across banks to stay protected, meaning unwelcome admin and complexity.”
The FSCS only covers financial services firms that have been authorised by the Financial Conduct Authority (FCA) or the Prudential Regulation Authority (PRA) to do business in the UK.
To ensure your money is protected, always check that any firm you deal with is authorised by the FCA or PRA before depositing funds or investing. Look for their authorisation number, often called a ‘firm reference number’ (FRN), usually found on their website or documents.
You can find out if your money is covered by using the FSCS protection checker on its website.
An important point is that the limit applies per authorised firm (specifically their banking licence for deposits). It’s not per account – so if you hold more than £85,000 in cash savings, it’s important to spread your money across different banks that have different licences.
When choosing a home for your savings, check if the savings provider is part of another brand or has its own licence. For example, Halifax and Bank of Scotland are both owned by Lloyds Banking Group and share a banking licence – so they are counted as one institution when it comes to the FSCS.
The same goes for HSBC and First Direct. In contrast, Royal Bank of Scotland and NatWest are both owned by the NatWest Group, but each bank has its own banking licence, each offering the £85,000 protection limit.
However, Ulster Bank deposits (in Great Britain) are covered under NatWest's licence, meaning your total protected amount across NatWest and Ulster Bank combined is £85,000. The £85,000 limit applies to each person per banking licence.
So for joint accounts the limit applies to each named account holder, with banks assuming funds are held in equal proportions. This means if you have a joint account with your spouse, you’ll be covered up to £170,000.
The FSCS protection checker also allows you to put in details of all of your accounts so you can see how much of your cash is protected.
Various studies show that average savings balances tend to increase with age. For example, according to NatWest, 29% of those aged 55+ have more than £10,000 in an emergency fund – compared to just 18% on average.
Meanwhile, the Hargreaves Lansdown Savings & Resilience Barometer shows that the average UK household with any savings holds £6,789. When the household is headed by someone aged 50 to 55, this figure rises to £9,350. When headed by someone 55 to 59 it’s £10,750, and at 60 plus it’s £11,218.
Sarah Coles, personal finance expert at Hargreaves Lansdown, says: “Some 97% of people are covered by the £85,000 limit, but older people may have more cash than this for a number of reasons. They may, for example, have lump sums after downsizing, taking tax-free cash, or when selling assets in order to prepare for paying for care. They should also keep one to three years’ worth of essential spending in an emergency fund, which for some people will bust the limit.”
There are some circumstances where you may be entitled to additional FSCS protection if your account has a temporary high balance because of a ‘qualifying life event’. This might include the proceeds of a house sale, a redundancy payment or benefits that were paid when you retired.
The FSCS can protect temporary high balances of up to £1m in your bank, building society or credit union account for six months. This will give you time to spread the money or invest it, without losing sleep over what would happen if your bank went under.
The FSCS claims process varies depending on what type of firm has failed. If your bank, building society or credit union fails, the process is designed to be automatic. The FSCS aims to pay compensation, usually directly into an alternative account, within seven working days for the majority of cases, meaning you typically don't need to actively submit a claim for deposits.
If an insurance company fails, the FSCS will aim to transfer policies to another insurer. If that’s not possible it will arrange the return of the remaining premiums. For all other claims, such as against investment companies or funeral plan providers, you’ll need to use the FSCS online claims service.
The FSCS is a safety net that gives UK savers – particularly those nearing or in retirement who might hold large cash balances – peace of mind. With an increase to £110,000 on the horizon, now is a great time to review your savings arrangements.
Check where your money is held, look up the banking licences, and ensure your hard-earned nest egg remains fully protected under the FSCS rules.
Find out what might happen to interest rates and what else you should consider.
Learn how to manage your pension pot to ensure you don’t run out of cash.
Find out whether you should open a tax-free savings account now
