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Utilities
In an effort to bolster consumer confidence in the UK's financial system, the Prudential Regulation Authority (PRA) has proposed a significant increase in the deposit protection limit offered by the Financial Services Compensation Scheme (FSCS). The current limit of £85,000, unchanged since 2017, is set to rise to £110,000, effective December 1, 2025, marking a substantial leap forward in safeguarding consumer deposits against bank failures. This article delves into the implications, benefits, and the broader context surrounding this move.
The Financial Services Compensation Scheme (FSCS) is the UK's deposit guarantee scheme, designed to protect depositors if a bank, building society, or credit union fails. Established in 2001, the FSCS has played a pivotal role in maintaining trust in the financial system by compensating depositors for their protected funds. Over the years, it has disbursed over £20 billion, with a notable peak during the 2008 financial crisis.
The decision to increase the deposit protection limit from £85,000 to £110,000 is largely driven by consumer price inflation since the last adjustment in 2017. This rise aims to ensure that the purchasing power of savings is not diminished over time, thereby keeping pace with economic conditions. Additionally, the proposal seeks to maintain a "round" figure, which is considered more memorable and likely to increase awareness and confidence among depositors.
The proposed hike in the deposit protection limit offers several benefits to consumers and the broader financial sector:
In addition to raising the standard deposit protection limit, the PRA is also proposing to increase the limit for Temporary High Balance (THB) claims. These claims typically apply in specific life events, such as the purchase or sale of a property, or payouts from insurance policies. The current limit of £1 million is proposed to rise to £1.4 million, also effective from December 1, 2025. This increase acknowledges the occasional necessity for higher levels of protection during significant transactions.
Consumers should note the following:
The PRA's consultation also incorporates proposals related to the Bank Resolution (Recapitalisation) Bill. This bill aims to broaden the FSCS's role by enabling it to use industry funds for recapitalizing failing banks, with the goal of facilitating their sale or transfer to a bridge bank in the public interest. While these proposals depend on the bill's passage, they mark a significant shift in how the financial sector approaches crisis management and resolution.
The increased deposit protection limit and other proposals are part of a broader strategy to maintain stability and confidence in the UK's financial sector. This move aligns with the government's focus on economic growth, as robust consumer protections are seen as a key driver of economic stability.
Industry Response:
The proposed increase in the deposit protection limit to £110,000 highlights the UK's commitment to protecting depositors and bolstering the financial system. As the PRA moves forward with these changes, it remains crucial for consumers to be aware of the protections available and how they can maximize their deposits' safety. With the expected implementation of these proposals in December 2025, consumers can look forward to enhanced security for their savings. This development continues to underscore the FSCS's pivotal role in maintaining trust in the UK's financial institutions.
A: The FSCS is the UK's deposit insurance scheme, established to protect deposits if a bank, building society, or credit union fails.
A: The limit is proposed to increase from £85,000 to £110,000, effective December 1, 2025, for new failures.
A: Yes, there will also be an increase in the Temporary High Balance (THB) claims limit from £1 million to £1.4 million, and potential changes related to the Bank Resolution (Recapitalisation) Bill.
A: The FSCS protects deposits up to the applicable limit on a per depositor, per institution basis. Depositors can protect more funds by spreading them across different institutions.
A: The consultation on the deposit protection limit ends on June 30, 2025, with final rules expected in November 2025.
