Millions of UK savers are sitting on record cash reserves, yet a critical change to the nation's financial safety net has left many unaware of the true level of protection for their money. The Financial Services Compensation Scheme (FSCS) has significantly increased its coverage, a move with profound implications for anyone with money in the bank.
The New £120,000 Safety Net Explained
In a key update, the FSCS limit has been raised from £85,000 to £120,000 per person, per authorised firm. This means if your bank, building society, or credit union fails, you are now guaranteed to get 100% of the first £120,000 back, typically within seven working days. For joint accounts held by couples, this protection is effectively doubled, offering cover of up to £240,000.
The Bank of England's Prudential Regulation Authority authorised this increase to ensure the safety net keeps pace with inflation, which remains above target. Financial experts suggest the higher limit will bolster public confidence in the UK banking system, particularly following historical financial scares.
Critical Pitfalls and How to Avoid Them
A widespread and costly misconception is that spreading money across different accounts automatically increases your protection. However, the FSCS operates per eligible firm, not per account. If you hold £120,000 in a current account and another £120,000 in a savings account with the same banking group, only a total of £120,000 is protected, not £240,000.
The situation can be even more complex because some major banking groups operate multiple well-known brands under a single financial licence. For instance, HSBC and First Direct share a single protection limit. Money saved across both brands is aggregated, and the total cover is still capped at £120,000 per person.
Temporary High Balances and How to Check Your Cover
There is important additional protection for those who temporarily hold large sums from specific life events. The FSCS 'temporary high balance' cover has been increased from £1 million to £1.4 million. This applies for up to six months following a qualifying event, such as receiving proceeds from a house sale, an inheritance, or an insurance payout.
Crucially, this enhanced protection is not automatic. The FSCS will require proof of the money's origin if a claim needs to be made. The onus is on savers to understand their position. Fortunately, the FSCS provides a free, live online checker tool. By entering your bank's name or its six-digit FRN (Firm Reference Number), you can see exactly how much of your money is protected.
It is vital to ensure you use the correct banking entity name, as the accuracy of the check depends on it. Savers should also be aware that funds held with e-money institutions or certain payment service firms are not covered by the FSCS guarantee.
Ultimately, while the raised limit offers greater security, the real winners will be savvy savers who take a few minutes to verify their protection and plan accordingly, rather than making dangerous assumptions about the safety of their deposits.
