Millions of UK savers are set to receive significantly enhanced financial protection as the official deposit guarantee limit increases to £120,000 next month, marking the first rise in eight years.
Substantial Protection Boost for Savers
The Financial Services Compensation Scheme (FSCS) protection ceiling will rise by more than 40% from the current £85,000 to £120,000 per person per financial institution starting 1st December. This substantial increase exceeds initial expectations, with authorities originally planning to set the limit at £110,000.
The Bank of England's Prudential Regulation Authority confirmed the higher threshold, citing consultation feedback and recent inflation data as key factors in their decision. With UK inflation currently running at 3.8% - nearly double the official 2% target - consumers are experiencing a rare benefit from elevated price pressures.
Enhanced Coverage for Major Life Events
The protection for temporary high balances will also see a significant boost, increasing from £1 million to £1.4 million. This coverage applies to large deposits resulting from specific life events including:
- Property sales (main residence only)
- Inheritance receipts
- Insurance policy payouts
- Retirement or redundancy settlements
- Personal injury compensation
The FSCS protects these temporary high balances for up to six months, providing crucial security during significant financial transitions. However, it's important to note that money from selling second homes or buy-to-let properties doesn't qualify for this enhanced protection.
Budget Timing and Savings Behaviour
The new protection limit arrives just five days after Chancellor Rachel Reeves's autumn budget on 26th November, sparking speculation about potential changes to cash ISA tax breaks. There are concerns the government might reduce ISA incentives to encourage more investment in British companies and stock markets.
This uncertainty may be driving current savings behaviour, with recent Bank of England data revealing £5.8 billion flowed into easy access accounts during September alone, while cash ISAs attracted an additional £2.4 billion.
Sam Woods, chief executive of the PRA, emphasised that the increased maximum limit "will help maintain the public's confidence in the safety of their money." The compensation process typically returns funds to eligible customers within seven days of a financial institution's failure.
Despite the enhanced protection, most UK savers won't need to worry about exceeding the new limit. Financial Conduct Authority research shows approximately 10% of UK adults held no cash savings in 2024, while among the 90% who did save, the median amount ranged between £5,000 and £6,000. Separate surveys indicate the average person in the UK maintains around £16,067 in savings for 2025.
