UK bank customers will see an increase in the protection of their money in the event of a financial provider’s failure due to new regulations taking effect. Starting December 1, individuals can expect up to £120,000 of their funds to be reimbursed if a UK-authorized bank, building society, or credit union becomes insolvent. This new cap surpasses the previous limit of £85,000, which had been maintained since 2017.
The elevated protection level falls under the Financial Services Compensation Scheme (FSCS) and was officially announced by the Prudential Regulation Authority (PRA). The compensation limit applies per person, per authorized firm, and is typically automatically processed within seven days of the firm’s collapse.
In cases where an individual holds funds across multiple accounts within banking groups sharing a license, the compensation limit pertains to the total amount held across these accounts. Moreover, the limit for temporarily high balances will also rise from £1 million to £1.4 million, covering significant transactions like property purchases, sales, and insurance payouts.
The FSCS safeguards these temporary high balances for six months from the date of the credit into an account. Funding for the FSCS is derived from a levy imposed on financial firms authorized by the PRA or the Financial Conduct Authority (FCA).
Sam Woods, the Deputy Governor for Prudential Regulation at the Bank of England and Chief Executive of the PRA, emphasized that the adjustment aims to bolster public trust in the security of their finances. The change ensures that depositors are safeguarded up to £120,000 should their financial institution encounter insolvency, thereby reinforcing the stability of the financial system.
The FSCS Chief Executive, Martyn Beauchamp, welcomed the increase in the deposit protection limit, emphasizing that consumers can now feel reassured that their funds are secure, ranging from the first penny up to £120,000. The enhanced protection is crucial for fostering consumer confidence and maintaining the stability and credibility of the UK’s financial system.
Various industry experts, including Rocio Concha from Which?, Eric Leenders from UK Finance, and others, have expressed support for the raised deposit protection limit, highlighting its role in bolstering consumer confidence and ensuring the safety of deposited funds. They underscore the importance of adapting the limit to inflation and providing customers with comprehensive information on FSCS deposit protection.