The FSCS deposit protection limit will rise by £35,000 from £85,000 to £120,000 from 1 December, the Prudential Regulation Authority has confirmed.

The change reflects the effects of inflation since the limit was last updated in 2017, the FSCS said.

The limit for qualifying temporary high balances will also rise to £1.4m.

The deposit protection limit was last updated in 2017 to its current limit of £85,000. In March The PRA said it proposed to raise the deposit protection limit to £110,000.

With a rise in more complex investment and retirement product cases, some critics have said the £85,000 limit was too low.

The new higher limit reflects the latest inflation data and gives savers greater certainty that more of their money is protected, the FSCS said. It said the move would strengthen trust and confidence in the UK financial system, which are key foundations for financial stability and economic growth.

The FSCS said from December, if a UK-authorised bank, building society or credit union goes out of business, it will compensate eligible customers up to the new limit of £120,000, per person, per authorised firm. Customers will typically get their money back within seven days of the firm going out of business.

The limit for qualifying temporary high balances will also rise to £1.4m. That can happen, for example, when someone sells their home or after other life events where consumers may have a large amount in their account for a short time. FSCS protects temporary high balances for up to six months.

Martyn Beauchamp, FSCS chief executive, said: “Whether it’s everyday cash, rainy-day savings or temporary high balances after a big life event like selling a home, everyone wants to know their money is safe. That’s why this increase in deposit protection matters. From December, even more of consumers’ money will be covered, from the first penny up to £120,000.”

To help people identify banks, building societies and credit unions with protected deposits, FSCS is also rolling out its refreshed ‘FSCS Protected’ badge from today. The badge gives people confidence that their money is safe. FSCS research showed more than three quarters of people said they would choose a financial provider that displays the ‘FSCS Protected’ badge over one that didn’t.

New look FSCS Protected badge

Mr Beauchamp said: “Our refreshed ‘FSCS Protected’ badge makes it easy to see where savings and deposits are protected, giving consumers confidence when choosing where to put their money. That reassurance builds trust in the financial services industry and supports financial stability and growth, with around 90% of those who know us saying FSCS protection boosts their trust in the financial services sector.”

The PRA’s announcement follows its consultation on depositor protection earlier this year, with industry feedback shaping the final measures, including the updated deposit protection limit.

FSCS will continue to work with the PRA and industry partners to raise awareness of the new limit and the ‘FSCS Protected’ badge, supporting firms during the transition from 1 December until 31 May.

The Financial Services Compensation Scheme (FSCS) is the UK's statutory compensation scheme that protects customers of authorised financial services firms if they fail or have stopped trading. FSCS can pay compensation if an authorised firm is unable to pay back money it owes to customers in connection with a regulated activity.

The FSCS protects:

Banks, building societies and credit unions

Investments

Pensions

PPI

Debt management

Endowments

Mortgage advice

Insurance

Funeral plans