UK PRA raises depositor protection threshold

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 What changed — new depositor protection limits

  • As of 1 December 2025, the maximum amount protected under the Financial Services Compensation Scheme (FSCS) for bank deposits has been raised. The protection cap went from £85,000 → £120,000 per person, per authorised institution. (jdsupra.com)
  • Also increased: the limit for certain “Temporary High Balance” (THB) claims — which cover short‑term elevated deposits (e.g., after selling a home or receiving a large payout) — rose from £1.0 million → £1.4 million. (jdsupra.com)
  • These changes were formalised in the PRA’s policy statement “PS24/25 — Depositor Protection.” The revised thresholds apply to PRA‑authorised UK banks, building societies, credit unions (and UK branches/subsidiaries of overseas deposit‑takers). (Bank of England)
  • Firms covered by the rules must update their internal systems (so FSCS can compensate depositors properly if needed), and must update their customer‑facing disclosures (websites, posters, product literature, “FSCS Protected” badges, etc.) — changes must be implemented by 31 May 2026. (Slaughter and May)

 Why the PRA Did This — Rationale & Context

  • The original £85,000 limit had not been revised since 2017. Over time, inflation eroded its “real‑value purchasing power,” making it less meaningful as protection for savers. The PRA said this update helps preserve depositor confidence and “future‑proof” the protection. (Bank of England)
  • The increase reflects feedback from a consultation run earlier in 2025 (Consultation Paper CP4/25), where many respondents (banks, industry bodies) endorsed an increase; some even suggested a higher number than £110,000 (initial proposal), citing inflation and evolving savings patterns. The PRA, after reviewing responses and inflation data, opted for £120,000. (jdsupra.com)
  • The hike aims to maintain public trust in the safety of banking deposits — especially at a time when economic uncertainty, higher interest rates, or shifts in savings behaviour could make savers more sensitive to risks. The PRA argues that a higher guarantee limit strengthens the resilience of the financial system. (jdsupra.com)

In effect: this is largely a protective / confidence-building measure — not an expansion of risk-bearing, but an update to reflect economic realities and safeguard savers.

 What It Means for Savers / Consumers

  • More savings covered if a bank fails: With the new £120,000 cap, a larger portion of a typical person’s savings is now protected from loss if their bank, building society or credit union becomes insolvent — especially relevant for people with larger savings (e.g. from inheritance, home sale proceeds, long-term savings).
  • Better protection for life events: The increased THB cap to £1.4 million helps cover “lumpy” deposits — offering peace of mind for short‑term large balances (e.g. after selling property, receiving payout, etc.), for a limited period.
  • Clarity & transparency for consumers: The requirement for banks to update disclosures and show the “FSCS Protected” badge — along with updated communication materials — should make it easier for customers to know upfront whether their account is covered, and up to what amount.
  • Bank‑by‑bank basis still matters: Protection applies per depositor, per authorised institution. If you hold savings across multiple banks/branches under a single licence, the limit may not multiply — so diversifying across truly separate institutions remains relevant to those seeking to protect more than £120,000. (Ellis Atkins Chartered Accountants)

 Commentary & Reactions — What Observers are Saying

  • The deposit protection increase has been welcomed by the FSCS itself — calling the move one that “gives people confidence their money is protected,” and highlighting the refreshed “FSCS Protected” badge as a helpful consumer tool. (FSCS)
  • Regulators (PRA and associated authorities) frame the change as a way to maintain trust and stability in the banking system — arguing that full deposit‑insurance coverage helps prevent bank‑run panic or loss of confidence during crises. (Slaughter and May)
  • Some industry stakeholders — particularly smaller banks and foreign‑branch institutions — had expressed concern during the consultation that a higher protection cap could increase costs for deposit‑takers. But the majority supported the increase, acknowledging rising living costs and inflation have eroded the protective value of the old cap. (UK Finance)
  • Among consumers and commentators: many see it as overdue. One common sentiment (on public forums) is that the old limit (£85,000) was increasingly out‑of‑date as people accumulate larger savings (inheritances, property‑sale proceeds, lifetime savings). So the increase to £120,000 is broadly viewed as a meaningful boost to depositor security. (Reddit)

 What It Doesn’t Do / What to Keep in Mind — Limitations & Caveats

  • This protection applies only to cash deposits (savings, current accounts, term deposits) in PRA-authorised institutions — not to investments (stocks, funds, shares), or other financial products. (Reddit)
  • The £120,000 limit is per depositor per firm. If you hold money in multiple accounts under the same banking group or licence, the limit might apply to the total combined deposit — meaning you might still want to spread savings across truly independent institutions for maximum protection. (Ellis Atkins Chartered Accountants)
  • The increased THB protection (up to £1.4 million) applies only for a limited period (when funds are “temporarily high,” e.g. sale of home, inheritance). It’s not a permanent higher guarantee — so long‑term savings beyond £120,000 remain partly exposed. (jdsupra.com)
  • As with any insurer/guarantee scheme: if a very large number of institutions collapse simultaneously, in theory there could be strain. But regulators argue that raising the limit helps maintain overall confidence and reduce systemic risk. (jdsupra.com)

 What This Means Longer‑Term — Broader Implications & Watch‑points

  • With inflation and rising living costs, the new limit better reflects what “saver security” should capture in 2025 — this update could help restore or reinforce public trust in banks, especially in uncertain economic times.
  • The change may encourage savers who were previously cautious (because their savings exceeded £85,000) to keep more in cash accounts — potentially boosting liquidity in UK banks, but also affecting savings/investment behavior.
  • The raise could also influence consumer behavior: for example, those receiving large lump‑sum payments (inheritance, asset sales) may feel safer keeping funds in deposits, rather than rushing into investments.
  • It sets a precedent: adjusting deposit‑guarantee levels to maintain real-value protection over time. The PRA indicates it may review the limit again in future (likely every few years) to ensure it keeps up with inflation — which could help safeguard depositors over decades. (Better Regulation)

 My Take — A Positive but Measured Upgrade

This update from the PRA is a meaningful and widely beneficial change. Raising the FSCS protection limit to £120,000 — and increasing THB coverage to £1.4 million — offers much stronger safety for ordinary savers, people with larger savings, or those undergoing major life events.

At the same time: it’s not a cure‑all. Smart savers should remain aware of the per‑firm limit rule and consider spreading large savings across independent institutions if they exceed the guarantee. But overall: this change improves the resilience and public confidence in the UK banking safety net — and seems a sensible move given today’s economy.

    • Here’s a detailed “case‑study + commentary” style overview of the recent Prudential Regulation Authority (PRA) decision — raising the depositor protection threshold — what changed, how it came about, what it means in practice, plus some of the reactions and risks. Since this is a policy/regulatory change rather than a single “event,” I treat the announcement + early aftermath as a “case” in itself.

       What Changed — The New Depositor Protection Limits

      • On 18 November 2025, the PRA confirmed that from 1 December 2025, the protection for bank deposits under Financial Services Compensation Scheme (FSCS) will rise from £85,000 → £120,000 per depositor per UK‑authorised institution (bank, building society or credit union). (Bank of England)
      • At the same time, the “Temporary High Balance” (THB) protection limit — which covers short‑term elevated balances (say after selling a home or receiving a large payout) — will increase from £1,000,000 → £1,400,000. (Bank of England)
      • The decision follows a 2025 consultation (UK Finance among respondents) under the discussion paper CP4/25. Originally the PRA proposed £110,000, but after feedback and updated inflation data, the final limit was set at £120,000. (Bank of England)
      • Banks and other deposit‑taking firms must update their customer disclosures (websites, branch notices, marketing) to reflect the new limit. They are given until 31 May 2026 to complete these changes. (Bank of England)

      In effect: if a bank fails on or after 1 Dec 2025, depositors are covered up to £120,000 (previously £85,000), and short‑term large balances are covered up to £1.4m (temporarily). For many savers, that’s a roughly 40% boost in protection.

       Why It Happened — Rationale & Background

      • The £85,000 limit had not changed since 2017 — meaning inflation had gradually eroded the “real‑value” protection over eight years. The PRA said updating the threshold preserves the “real safety” of deposit coverage, helping maintain public confidence. (The Guardian)
      • The increase was supported broadly across respondents to the consultation: most backed at least the £110,000 proposal — some wanted even higher (up to £130–155k), arguing inflation since 2010 or 2017 justified a larger raise. (Bank of England)
      • The PRA’s final decision (£120,000) tries to strike a balance: it reflects inflation since 2017 (the last time limit changed), while avoiding placing excessive burden on deposit‑taking firms (which must pay levies to support FSCS in case of failures). (Bank of England)
      • For “Temporary High Balance” (THB) protections — often needed for life events (home sale, inheritance, insurance payout) — raising to £1.4m acknowledges that many people now hold larger sums temporarily than would have been typical when the earlier £1m threshold was set. (Ellis Atkins Chartered Accountants)

      So: the move is fundamentally to modernise the protection scheme, keeping pace with inflation and contemporary savings behaviour, to maintain trust in the banking system and avoid depositors losing large sums if a bank collapses.

       What It Means in Practice — For Savers, Banks, and the System

      For Savers & Consumers

      • Greater security for nest eggs: People with savings up to £120,000 per bank are now fully protected — reducing risk if their bank fails. This is especially important for individuals with large deposits (inheritance, lump sum savings, etc.).
      • Better cover for “life‑event” windfalls: Those receiving large, temporary payments (sale of residence, insurance payout) benefit from the higher THB limit: they can safely hold large sums for an interim period.
      • Encouragement to save in cash accounts: With higher coverage, some savers may feel more comfortable keeping money in cash rather than riskier investments — potentially increasing deposits with UK banks and building societies.
      • Need to still manage risk intelligently: Because protection is per “authorised institution” (not per account), someone with over £120,000 might want to spread funds across different banks (with separate licences) to maximize protection. FSCS guidance clarifies this. (FSCS)

      For Banks, Building Societies & the Financial Sector

      • Deposit‑taking firms now carry slightly higher risk exposure via FSCS — meaning their contributions (levies) to the compensation pool may rise. The PRA estimated a ~22% increase in total levy under the £120,000 limit scenario vs old limit. (Bank of England)
      • Institutions must update their customer‑facing materials — websites, branch notices, marketing — to reflect the new limit within the transitional period (by May 2026). (Bank of England)
      • The change aims to support stability and confidence — which is a positive for banks broadly, potentially reducing the likelihood of bank runs in times of stress. The PRA explicitly mentions boosting public confidence as a motivation. (Bank of England)

       Commentary & Reactions — What Observers Are Saying

      • The announcement has been widely welcomed by consumer‑protection advocates and financial commentators as “overdue,” given inflation and rising living costs. (The Guardian)
      • Some view it as especially timely because many savers are holding unusually large cash balances (e.g. due to economic uncertainty, slow investment markets, desire to keep cash “safe”). The raised limit may encourage more people to keep money in cash savings rather than risk assets. (The Guardian)
      • On the regulatory side, the upgrade is seen as a signal that the PRA is “modernising” and responsive — showing that deposit insurance is not static and will be reviewed periodically. (Bank of England)
      • But some caution remains: even with £120,000 protection, amounts above that — or cash spread across different accounts under the same banking licence — remain exposed. Financial advice still recommends diversification across authorised firms for large balances. (FSCS)
      • There’s also a risk that public perception becomes over‑confident: some depositors might treat the higher limit as guarantee “forever,” forgetting that the limit only applies per firm — and that FSCS does not cover investments (stocks, shares), only cash deposits. (Which?)

      Overall, most commentary frames this move as a sensible update to match economic conditions — not as a radical overhaul, but as a necessary evolution of depositor protection.

       What It Doesn’t Guarantee — Limitations & What to Watch

      • Not a protection for investments or non‑deposit products. The limit only applies to cash/savings deposits in UK‑authorised institutions — not to stocks, shares, investment funds, pensions, or other asset types. (Which?)
      • Limit per institution, not per account. If a banking group operates multiple brands under the same licence, deposits across all are counted together. So simply spreading money across sub‑brands doesn’t guarantee extra protection. (Bank of England)
      • Large sums still at risk if over limit. Even with £120,000 protection, a depositor with, say, £250,000 in one bank would only have £120,000 covered — the rest is exposed if that bank fails.
      • Risk for temporary high balances is time‑limited. The THB £1.4 million protection covers only certain life events and only for a limited time (up to six months). Holding large sums long-term above the £120,000 limit may still be risky. (FSCS)
      • Reliance on prompt compensation. While FSCS promises to repay eligible deposits usually within seven days after a failure, this assumes efficient claims processing — which may be tested in a widespread banking crisis. (FSCS)

       Historical / Hypothetical “Case Scenarios” — When This Protection Matters

      While there is no “recent bank collapse” that immediately triggered this revised limit (so it’s not a “case result” yet), the rationale draws on past experiences and hypothetical risk scenarios:

      • Past failures and weak protection: Banking collapses in prior crises (2008 financial crisis, smaller building‑society failures) showed that many depositors lost significant savings because limits were too low compared to what people held. Raising the limit may prevent large losses in future failures.
      • Large-life-event deposits: Consider someone selling a home in London, receiving ~£350,000 proceeds, then holding the money in a bank prior to reinvestment. Under old £85,000 limit, most of that amount was uninsured — now up to £120,000 (or £1.4 m for THB, for a short period) is covered — significantly reducing risk.
      • Confidence during economic uncertainty: In times of economic stress or banking-sector turbulence (rising interest rates, liquidity squeezes), higher deposit protection may discourage “runs” — depositors withdrawing en masse — preserving system stability.

      In that sense, the policy acts as a preventive / protective buffer rather than a reaction to a recent failure — building resilience into the banking system before any crisis hits.

       My Assessment — Why This Change Matters & What to Watch

      I view this raise in deposit protection threshold as a prudent, responsible, and needed update. It reflects changing economic realities (inflation, higher house prices, larger savings, bigger lump‑sum transactions) and improves the financial safety net for ordinary savers. For many people it may be the difference between losing a small portion of savings and losing nothing in a hypothetical bank failure.

      At the same time, it’s not a magic bullet: large savers still need to be aware of the per‑institution limit, spread deposits appropriately, and understand that investments remain unprotected.

      Looking forward — it will be interesting to see:

      • Whether depositors change behaviour (keep more in cash rather than invest), and what impact that has on banking liquidity and economic growth.
      • How banks and financial institutions adjust: higher protection may make them seem safer — but might also raise costs (through higher FSCS levies).
      • Whether the PRA reviews the £120,000 threshold regularly (e.g. every 5 years), to keep up with inflation and prevent erosion of protection again.

      Given current conditions — inflation, living‑cost pressures, economic uncertainty — this move improves individual financial security and helps stabilize trust in the UK banking system.

 

Categories: GB News, UK News