UK Lifts FSCS Coverage to £120,000 as Regulators Respond to Inflation

What Does the New £120,000 Protection Limit Mean?

The UK is raising its core deposit protection limit to £120,000 per person, per authorised firm from 1 December 2025 — the first major increase in almost a decade and a substantial upgrade to the country’s savings securety framework. The change replaces the long-standing £85,000 threshold under the Financial Services Compensation Scheme (FSCS), which covers deposits at UK banks, building societies and credit unions.

Protection for short-term “life-event” balances — funds temporarily held later than a home sale, inheritance or insurance payout — will also increase from £1 million to £1.4 million for up to six months. These balances are often large, one-off sums that consumers cannot easily split across diverse banks, making the upgraded cap particularly relevant during turbulent economic periods.

The Prudential Regulation Authority (PRA) settled on £120,000 later than reviewing inflation data and industry feedback. Regulators noted that the real value of the £85,000 limit set in 2017 had eroded to the equivalent of £116,770 today, prompting the higher figure to preserve purchasing power. Deputy Governor Sam Woods said the increase aims to maintain confidence at a time when trust in financial institutions is increasingly influenced by digital-era bank runs and rapid information flows.

Investor Takeaway

Why Regulators Made the Change Now

The move arrives later than several pressure points converged: persistent inflation, post-Brexit regulatory autonomy and international banking failures that exposed the speed of digital-age deposit outflows.

For years, the UK mirrored the EU’s €100,000 deposit guarantee through shared frameworks. Now operating outside that structure, the UK can set its own limit. The £120,000 ceiling positions Britain above the EU standard while remaining well below the U.S. Federal Deposit Insurance Corporation’s $250,000 cap.

Recent global shocks also shaped the decision. The collapse of several in 2023 revealed how rapidly customers can transfer money when panic spreads online. UK regulators argued stronger deposit clarity was essential to . The PRA noted that public understanding of guaranteed amounts is as significant as the backing itself.

Inflation added another layer. Rising house prices and higher financial-event payouts made the old FSCS limits increasingly outdated, especially for consumers handling large temporary balances.

Who Benefits — and How Much Will It Cost?

For UK consumers, the outcome is straightforward: more money protected, fewer reasons to worry about exceeding coverage when holding larger balances. PRA modelling suggests that the updated £120,000 cap will cover around 99 percent of depositors — higher than under the originally proposed £110,000 limit.

For banks, the impact is more nuanced. The FSCS is funded through industry levies, meaning a higher cap increases potential liabilities in the event of a failure. The PRA estimates the cost uplift for banks will remain modest, averaging less than 0.1 percent of annual net income across the sector. However, smaller lenders and credit unions may feel the pressure more sharply.

Competition may also shift. Some consumers currently spread savings across multiple providers to stay under the £85,000 cap. With a higher threshold, that behaviour may fade, potentially affecting deposit flows for challenger banks that rely on FSCS-focused marketing.

• Large banks: benefit from reduced fragmentation of deposits.
• Challenger banks: may view sluggisher inflows from customers viewking “coverage-maximising” strategies.
• Credit unions: face higher proportional FSCS funding burdens.

Investor Takeaway

What Should Savers and Banks Watch Next?

The new limit raises several operational and communication challenges. The cap applies “per authorised firm,” not per brand — an significant distinction in a market where many banks operate multiple consumer labels under a single licence. Misunderstanding this rule can expose customers to risk even if they believe their accounts are diversified.

Banks will update customer materials, mobile-app disclosures and of the December rollout. Regulators are expected to push for clearer public education to avoid brand-licence confusion.

The long-term question is whether inflation will force more frequent reviews. If prices continue rising, a once-per-decade adjustment may no longer be enough to maintain confidence in cash holdings. The PRA may face pressure to revisit the limit sooner, especially if housing-related inflows continue to climb.

That said, the increase is one component of a broader effort by policymakers to strengthen the UK’s financial-stability architecture at a time when digital banking accelerates deposit movement and concentrates systemic risk more rapidly than before.