Bank of England Raises Deposit Guarantee Limit to £120,000 to Strengthen Saver Protection

The Bank of England has announced a significant increase in the protection offered to UK savers in the event of a bank failure, raising the deposit guarantee limit to £120,000, up from the previous £85,000. The move represents a 40% increase and aims to reinforce financial stability amid persistently high inflation.

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Background of the Decision

The previous cap under the Financial Services Compensation Scheme (FSCS) had been in place since 2017. While the Bank of England’s Prudential Regulation Authority (PRA) initially proposed lifting the limit to £110,000, continued strong inflationary pressures prompted regulators to adopt a higher threshold to preserve the real value of protected savings.

PRA Chief Executive Sam Woods stated that the change “will help maintain the public’s confidence in the safety of their money,” underscoring the importance of consumer trust in the financial system.

International Comparison

The new deposit guarantee level surpasses the European Union’s harmonised limit of €100,000 (approximately $115,860). However, it remains below the guarantee provided in the United States, where coverage stands at a minimum of $250,000 per depositor.

Additional Consumer Protection Measures

The PRA also confirmed an increase in the compensation cap for temporary high balances, such as proceeds from a home sale. This ceiling will rise from £1 million to £1.4 million, offering greater protection during major financial events in consumers’ lives.

The FSCS is funded by the financial services industry and provides compensation to customers when a bank or building society collapses.

The decision to raise the deposit guarantee limit marks a strategic step by the Bank of England to strengthen financial security and safeguard savers in a challenging economic environment. By adjusting the cap to reflect inflation and global benchmarks, regulators aim to support public confidence and ensure the resilience of the UK’s financial system.