From December 1, 2023, the Financial Services Compensation Scheme (FSCS) will increase the compensation limit. It means UK bank and building society customers can now claim up to £120,000 in compensation. This is a great achievement, signalling a strong 41% increase from the former threshold of £85,000. Conversely, it makes sense only to each person, for each firm. At a time of significant economic uncertainty, the change is intended to help restore consumer confidence in our financial system.
The Administration’s decision to raise the compensation limit would be the first increase in eight years. The original deposit proposal had actually proposed a cap on deposit protection at £110,000. The grand total was well beyond what was anticipated. This impressive performance underscores the forward-looking actions of the Prudential Regulatory Authority (PRA), which set the new limit in consideration of increasing inflation and shifting economic conditions.
Under the FSCS, any eligible customer is guaranteed partial compensation in the event an authorized UK bank, building society or credit union collapses. Under the program, borrowers are typically refunded their funds within seven business days following the default of a peer-to-peer lender. Specifically, this swift response provides crucial promise for depositors.
Speaking on the day of this increase, Sam Woods, chief executive of the PRA underscored how critical this increase is to public confidence.
“This will help maintain the public’s confidence in the safety of their money.” – Sam Woods
The raising of the compensation limit comes as financial security has never been more crucial for so many across the UK. Official data from the Financial Conduct Authority (FCA) shows that 10% of all UK adults currently have no cash savings at all. This troubling statistic underscores the immediacy of the need for robust financial protections. For those that do, the median amount saved is £5-6,000. By contrast, by 2025, it is predicted that the average person in the UK will only have about £16,067 saved.
The annual inflation rate currently is 3.8%, almost twice the Bank of England’s target of 2%. This is an all-too-relevant economic landscape that underscores the importance of financial safety nets. Further, they assist consumers in addressing increased costs and the threat of upheaval in the banking industry.
The PRA’s improvements will provide stronger safeguards for deposits. That, in turn, will help people feel more secure about saving. It’s no surprise then that banks and financial institutions are still catching up to these new regulations. At the same time, consumers need to be educated about their rights and protections under the FSCS.