SAVINGS // A GUIDE TO THE FSCS
As the FSCS raises its deposit protection limit from £85,000 to £100,000 on 1 December, many savers are asking what this change truly means, not just technically, but strategically. In this piece, we unpack why the increase is happening now, how the rules work in practice, and the risks clients should still be conscious of in a volatile market. From banking licences to temporary high balances, concentration risk to cash-rate complacency, this article offers a clear, calm guide to navigating cash protection with confidence in an increasingly uncertain financial landscape.
On 1 December, the UK’s Financial Services Compensation Scheme (FSCS) will introduce its first major increase to depositor protection in years — raising the limit from £85,000 to £100,000 per eligible person, per authorised bank. The timing is not accidental. After a period marked by bank failures abroad, volatile markets, and persistent inflationary aftershocks, regulators are leaning once again into the foundational principle of financial stability: confidence.
For savers, this shift is more than a technical adjustment. It reshapes how cash is safeguarded, how risk is distributed, and how we think about liquidity in an era where uncertainty is the backdrop, not the headline.
What Is the FSCS and How Does It Work?
The Financial Services Compensation Scheme (FSCS) is the UK’s statutory safety net for customers of authorised financial institutions. It exists to protect consumers if a bank, building society, credit union, or certain investment or insurance firms fail and cannot return your money.
Put simply: if your financial provider collapses, the FSCS steps in to compensate you — up to set limits — so you don’t lose everything.
Why the FSCS Exists
The scheme was created to:
Maintain public confidence in the financial system
Prevent panic withdrawals during periods of uncertainty
Ensure clients are not left unprotected in the event of firm failure
Provide a consistent baseline of safety, regardless of institution size
It has become a cornerstone of UK financial stability — especially as digital banking has made money movement faster than ever, amplifying the potential for systemic risk.
Why the Increase? A Changing Economic Weather Pattern
The FSCS limit is linked to the value of the euro — specifically the €100,000 harmonised deposit guarantee across Europe — and periodically reviewed to ensure UK savers are not left structurally disadvantaged. With sterling’s fluctuations and the cumulative effects of inflation, the £85,000 cap had become increasingly misaligned with the real value it was intended to protect.
Against a wider backdrop, the rise also reflects:
A Global Reassessment of Banking Risk
The US regional banking crisis in 2023–24 exposed how quickly confidence can evaporate in digital-first economies.
European institutions have tightened liquidity coverage ratios.
UK regulators have emphasised operational resilience as a systemic priority.
By nudging the limit upward, the UK is signalling a commitment to depositor reassurance with a subtle but important lever for market calm.
How It Works
1. Funded by the Industry, Not Taxpayers
The FSCS is paid for through levies on financial institutions regulated by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA). This ensures independence and prevents compensation from relying on government budgets.
2. Automatic Compensation (You Don’t Apply)
If a firm fails, the FSCS typically gathers customer data from the institution and pays compensation automatically, usually within seven days for protected deposits. There’s no form to fill out, no legal claim to make. The process is designed to be fast and frictionless.
3. Deposit Protection Limits
From 1 December 2025, the FSCS protects up to £100,000 per person, per bank licence.
Couples benefit from effectively doubling the protection. A joint account at one bank is protected up to £200,000 under the new limit.
The protection applies to money held in:
Current accounts
Savings accounts
Cash ISAs
Temporary high balances (up to £1 million for six months)
4. “Per Bank Licence,” Not Per Brand
A common misconception is that each brand has its own protection. In reality, many high-street names sit under a single banking licence. For example:
Lloyds, Halifax and Bank of Scotland = one licence
HSBC and First Direct = one licence
NatWest, RBS and Ulster Bank = one licence
If you hold £100,000 across multiple brands under the same licence, only £100,000 is protected in total.
This matters for anyone with large cash balances spread among “different” banks that are, structurally, the same entity.
5. Temporary High Balances
Life events may generate a sudden influx of cash. These “temporary high balances” can be protected up to £1 million for six months, provided the source is eligible and evidence can be produced. This is especially relevant for clients selling property in the current market or awaiting distribution from estates. Including:
Property sale proceeds
Inheritance
Divorce settlements
Insurance payouts
Redundancy payments
You must be able to evidence the source if compensation is needed.
6. It Covers More Than Just Banks
While most people know FSCS for deposit protection, it also safeguards:
Investment providers
Insurance intermediaries
Mortgage brokers
Certain pension products
The limits and conditions differ, but the core principle remains: protecting consumers against firm failure, not market loss.
7. FSCS is a last resort
Compensation only applies if an institution fails and cannot meet its obligations. It is not a risk-management strategy in itself but a safety net.
Broader Market Context: Why This Matters Now
The increase lands at a moment where cash is paradoxically attractive and risky at the same time.
Cash Rates Are High — But So Are Concentration Risks
With UK interest rates peaking at multi-decade highs, many clients have built up larger cash reserves, waiting for property opportunities, stabilisation in equity markets, or clarity in the global rate cycle. While this can be pragmatic, it has amplified exposure to single institutions.
Inflation May Be Slowing — But Has Altered Behaviour
Persistent inflation has made liquidity more central to planning conversations. Clients want optionality. They want buffer capital. And they want certainty that the cash they’re holding is genuinely secure.
Geopolitics Adds a Layer of Fragility
Whether it is elections, energy shocks, or supply-chain volatility, geopolitical noise now moves markets with unusual speed. Depositor protection is part of ensuring individual investors aren’t caught in the tailwinds of systemic events.
Risks and Precautions You Should Consider
A higher FSCS limit is helpful — but it does not replace sensible cash management.
1. Avoid over-concentration
If your cash holdings exceed £100,000 with a single banking licence, consider distributing funds across institutions. This is particularly important for entrepreneurs holding working capital, or families managing multi-account setups.
2. Understand your bank’s licence structure
Different brands can share a licence; unfamiliar subsidiaries can operate under the same umbrella. A quick check on the FSCS website, or through your adviser, can prevent unintended exposure.
3. Maintain documentation for temporary high balances
If you’ve recently sold a property or received a settlement, keep conveyancing statements, agreements and bank trails. FSCS may request them if compensation is needed.
4. Use diversified cash vehicles where appropriate
Money market funds, short-term gilts, and treasury-backed instant access vehicles can provide liquidity while spreading institutional risk. These instruments behave differently from deposits — and may be more appropriate for six- to 18-month cash horizons.
5. Consider the opportunity cost of holding too much cash
Protection limits do not negate inflation risk. For longer-term funds, a strategic blend of investments may preserve purchasing power more effectively.
The Bigger Message: Stability Through Structure
The FSCS increase is, ultimately, about confidence. Not in the sense of complacency, but in the quiet assurance that the financial system recognises, and is responding to, the complexity of modern wealth. For you, this is a moment to review your structures, understand where your cash actually sits, and ensure that the buffers designed to protect your wealth are working as intended. Regulation is moving. Markets are shifting. And small adjustments, like the new £100,000 limit, become meaningful when they are integrated into a coherent strategy.
If you’d like a personalised review of your current cash arrangements or clarity on how the new limit affects you, just let us know — sign up for a personalised Wealth Refresh session where we can map everything out clearly so you’re protected, prepared, and positioned with confidence.