A HUGE £35,000 hike to bank protection rules will come into force in just under two weeks.
The Prudential Regulation Authority (PRA), which oversees banking in the UK, has confirmed that if a financial firm goes bust savings worth up to £120,000 will be protected.
If you put money into a bank, building society or investment firm that is properly regulated, some of your savings are protected by something called the Financial Services Compensation Scheme (FSCS).
The FSCS is paid for by all regulated financial companies.
It means if your bank or financial provider goes out of business, you get your money back, up to a certain limit.
Currently, the most you can get back is £85,000.
But the PRA has now announced that this will increase the limit to £120,000 to keep up with rising prices over the years.
The £35,000 protection boost is set to come into effect on December 1, giving savers just two weeks to wait.
It follows a consultation on the changes which finished on June 30, with the PRA confirming the new rules today, Tuesday, November 18.
Over the past three years, the FSCS has paid out £10.1million in compensation to savers, which it said largely related to small credit union failures.
Credit unions are where locals pool their money together to lend to one another at reduced rates.
In the event a bank goes bust, the group also said that customers will typically get their money back within seven days of the firm going out of business.
Sam Woods, PRA chief executive, said: “This change will help maintain the public’s confidence in the safety of their money.
“It means that depositors will be protected up to £120,000 should their bank, building society or credit union fail.”
“Public confidence supports the strength of our financial system.”
Martyn Beauchamp, FSCS Chief Executive, added: “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.”
How does the FSCS work?
If your bank or financial company goes out of business and cannot pay its debts, you might be able to get your money back through the FSCS.
The company must be properly regulated by the FCA or PRA for you to be covered.
You can find out if your bank is regulated by visiting bankofengland.co.uk/prudential-regulation/authorisations/which-firms-does-the-pra-regulate.
Why YOU should care that protection now goes even higher
Sam Woods is CEO of the Prudential Regulation Authority and Deputy Governor for Prudential Regulation at the Bank of England – he shares what the changes mean for savers
Sun readers would be forgiven for being a bit sceptical about our announcement today.
£85,000 is already more than most people have in their bank accounts – why should they care that protection now goes even higher, to £120,000?
Well, I think there are a couple of good reasons.
First, while the number is deliberately very high to try and give people confidence that their money is as safe as possible, it still can be an amount reached by many people, particularly those who have been saving for a long time for retirement or a major purchase like a house.
People also sometimes have a sudden influx of cash, such as after selling their home or inheriting. They can also benefit from today’s changes – with the temporary limit following such life events rising to £1.4 million.
But second, we are all better off because of this protection.
It gives us all greater confidence to keep some money in the bank.
This means banks can lend more – for instance, for someone’s mortgage or to help them run a business.
All those loans come together to help drive our economy – the house sale that completes a chain and lets a renovation begin, or the business that fills a gap in the market.
And that supports growth across the whole country, which benefits us all.
So the added security we’re announcing today can benefit us all in the long run, no matter how much you have in your account today. With this financial safety net firmly in place, we can all go about our lives more confidently.
You’re able to get compensation if you lose money because the company has gone bust.
If your bank, building society or credit union fails, you will automatically get back up to £85,000 – there’s nothing you need to do.
For other types of firms, you may need to make a claim yourself online. You can do this at claims.fscs.org.uk.
You’ll need to fill in some details and may have to upload some documents as proof.
Visit the FSCS’s website at fscs.org.uk/making-a-claim/claims-process/before-claiming/ to see what to do for each type of financial firm.
For example, complaints against an insurer may require you to provide your policy documents, while for investment claims you will need proof that the firm gave you advice.
