Customers with bank accounts in the UK will see a significant increase in the amount of money that is protected if their bank or building society collapses.
The deposit protection scheme means customers can currently claim back the first £85,000 of their money. But from December that will rise to £120,000.
The move, confirmed by the Prudential Regulation Authority (PRA) which supervises UK banks, marks the biggest increase since 2017 when the current limit was set.
Martyn Beauchamp, chief executive of the Financial Services Compensation Scheme (FSCS), said: “This rise ensures that consumers can feel confident their money is safe, from the very first penny up to £120,000.”
The new deposit protection limit increase is higher than the PRA’s earlier proposal of £110,000 and reflects both the latest inflation data and feedback from consultations, the Bank of England said.
The FSCS protection applies per person, per authorised firm. Some banking groups operate multiple brands under a single licence, meaning the limit covers the total amount held across those brands.
Customers do not need to take any action as the new limit will apply automatically.
Sam Woods, deputy governor for prudential regulation at the Bank of England and chief executive of the PRA, said: “This change will help maintain the public’s confidence in the safety of their money.
“It means that depositors will be protected up to £120,000 should their bank, building society or credit union fail. Public confidence supports the strength of our financial system.”
Consumer group Which? described the move as “a sensible decision” that supports consumer confidence in the financial services industry.
Rocio Concha, Which? Director of policy and advocacy, said: “It is also a timely reminder that, at a time when the government and regulators are trying to boost economic growth, strong consumer protections needn’t hamper those aims.”
Eric Leenders, managing director of personal finance at UK Finance which represents the banking industry, said it was was “right” to update the limit to take account of inflation and would help to implement the changes.
Alongside the new deposit limit, the cap for temporary high balances – to cover life events such as funds from a house sale or insurance payout – will also rise from £1m to £1.4m for six months.
The FSCS is funded by a levy on financial firms authorised by the PRA or the Financial Conduct Authority (FCA).
Read More: UK bank customer protection if firm goes bust rises to £120,000
