From 1 December 2025 the UK deposit protection rules will shift in a way that will matter for many savers, especially those holding larger balances or receiving significant one-off payments. The Financial Services Compensation Scheme is increasing the maximum protection for eligible deposits held with UK banks, building societies and credit unions. The long-standing limit of £85,000 per person per authorised firm will rise to £120,000. The protection for temporary high balances will also increase, moving from £1 million to £1.4 million, with cover lasting for up to six months.
These changes follow a review of the scheme that considered the erosion of real value caused by nearly a decade of inflation. The previous limit had not changed since 2017. As prices, house values and average cash holdings increased, the £85,000 cap covered a smaller and smaller proportion of typical savings. The new figures are intended to restore the original level of protection and maintain confidence in the financial system.
Why the changes matter for savers
For everyday savers, the increased limit means a larger share of their money is fully protected if their bank were to fail. While bank collapses remain rare, the reassurance of compensation has always been a central part of financial stability. Raising the limit helps ensure that savers do not have to worry unnecessarily about the safety of ordinary cash deposits.
The updated rules on temporary high balances are important as well. Life events often lead to large short-term cash holdings. A house sale, a divorce settlement, an inheritance or an insurance payout can all result in six figure sums sitting temporarily in a bank account while the individual decides what to do next. Under the previous rules the protection for these situations was capped at £1 million. The move to £1.4 million brings that figure closer to the current value of many property transactions and gives people more time and confidence to organise their finances.
How the protection works in practice
The £120,000 limit applies per person per authorised institution. If you have several accounts with the same bank, and that bank operates under a single licence, all balances are grouped together for the purpose of the protection calculation. Joint accounts are covered per individual, so a joint account held by two people could receive protection up to £240,000 in total.
The temporary high balance protection operates slightly differently. It applies only to specific types of transactions such as proceeds from property sales, inheritances and insurance claims. The money must have been received within the past six months, and the individual must be able to show the source of funds. The protection is automatic, but it is time limited. After six months the standard £120,000 limit applies.
For most people, the process in the event of a bank failure is straightforward. The Financial Services Compensation Scheme normally refunds protected deposits within seven days. You do not need to make a claim or fill in forms. The system is designed to be fast and automatic.
Practical things to consider
One point that often surprises savers is that well known banking brands can share the same banking licence. This means the £120,000 limit applies to the group as a whole rather than to each brand. It is worth checking which brands belong to which authorised firm if you hold more than £120,000 across several accounts. Splitting money between institutions with separate licences can provide greater protection.
The increase in the limit will mean that many savers who currently split modest sums between two or three banks may find they no longer need to do so purely for safety reasons. Even so, some individuals prefer to spread funds for convenience or organisational reasons, for example separating savings for different goals across different accounts. The higher limit does not remove these preferences; it simply reduces the pressure to do so for safety alone.
For people expecting a large one-off payment, the new temporary high balance protection provides breathing space. Rather than rushing to move or invest the money within a few days, individuals have up to six months to decide how best to use the funds while still enjoying a significant level of protection.
Conclusion
The increase in the UK deposit protection limits is a welcome modernisation of a long-standing safeguard. It restores the real value of protection that had been steadily eroded and gives savers greater confidence that their money is safe. The change is sensible, proportionate and aligned with current financial realities. For individuals and small businesses alike, it reduces anxiety and provides more flexibility, especially around major financial events that temporarily increase cash balances.