Bank of England Announce Increase in Deposit Protection Limit for the First Time Since 2017

UK bank account holders will now have more of their savings covered by the nation's deposit guarantee scheme.

The Bank of England (BoE) announced on Tuesday, 18 November, that the standard amount of money to be covered by the scheme will rise to £120,000 ($157.8k) per person. This means account holders are guaranteed to claim that same amount in case their banks or building society fails.

The scheme, supervised by Financial Services Compensation Scheme (FSCS), will take effect on 1st December.

Biggest Increase in Eight Years

The previous limit of £85,000 ($111,797) set in 2017 will see an increase for the first time next month. The BoE had previously proposed to raise the guarantee to £110,000 ($144.6k) in March, which they opted to increase to consider persistent inflation.

UK bank supervisor Prudential Regulation Authority (PRA) confirmed on Tuesday that the Treasury has approved its plan. 'This rise ensures that consumers can feel confident their money is safe, from the very first penny up to £120,000,' said FSCS chief executive Martyn Beauchamp.

The limit was created in 2001 and has increased several times since. Before its previous increase in 2017, the guarantee was only at £75,000 ($98.6k).

How The Guarantee Works

FSCS' safety protection limit applies for each person per authorised firm. This means banking groups operating under a single licence are accountable for the total amount held by their customers across all their brands.

Customers do not need to do anything because the new limit will apply automatically.

Moreover, joint account holders' protection limit will also be doubled to £240,000, but account owners only get one limit to cover their joint account.

PRA chief executive and BoE deputy governor for prudential regulation Sam Woods said that the new limit 'will help maintain the public's confidence in the safety of their money.'

Along with the new deposit limit, the cap for temporary high balances to cover sudden influx of funds also rose from £1 million ($1.3 million) to £1.4 million ($1.8 million) for six months.

In the past, the FSCS has paid out more than £26 billion ($34.1 billion) to millions of customers of failed companies in the banking sector. However, the BoE estimates that the contributions from banks as a byproduct of this reform only represents less than 0.1 per cent of their annual net income.

Consumer Groups React

Director of policy and advocacy of consumer group Which? Rocio Cocha said that the move is a 'sensible decision.'

'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,' he added.

Managing director of personal finance at UK Finance Eric Leenders also chimed in saying that it was right to take inflation into account when updating the limit.

Ensuring your savings are protected

To ensure that your account is covered by the new protection limit, you need to check whether your bank or savings provider is under the scheme.

You can use FSCS's online tool to find out by entering the firm's name and the amount of money currently deposited in your account. In addition, check the bank's six-digit registration number of FRN to see if it matches the one listed on their website.