UK savers could have up to £110,000 protected under regulator’s new plan

UK savers would have up to £110,000 of their deposits protected if their bank or building society goes bust under proposals put forward by the Bank of England.

The plan, put forward by the central bank on Monday, represents a near-30% hike from the current limit of £85,000, and would mark the first substantial change to the savers’ protection scheme since the 2008 banking crisis.

The Bank’s regulatory arm, the Prudential Regulation Authority, said the increase would account for inflation and was intended to “give consumers confidence that their money is safe if their UK-authorised bank, building society or credit union fails”.

Sam Woods, the chief executive of the Prudential Regulation Authority, said: “Confidence in our financial system is an essential foundation for economic growth.

“We want to support confidence in our banks, building societies and credit unions by raising the amount that people can keep in their account which is covered by the deposit guarantee scheme to £110,000 per person, so all that money is safe even if the firm fails.”

Everyday customers and most small businesses have a portion of their savings guaranteed under the programme, which is run by the Financial Services Compensation Scheme (FSCS). The scheme was launched in 2001 but was substantially ramped up after the global banking crash, with an £85,000 limit set in 2010.

That limit was set in reaction to the financial crisis, when a number of UK banks were brought to their knees. That included Northern Rock, which suffered the first bank run in the UK in over a century in 2007. At that time, only the first £2,000 of savings were protected in full, while 90% of the next £33,000 would be paid back. That meant most people lost money if their lenders failed.

A much higher cap, introduced in 2010, was temporarily cut to £75,000 to bring it in line with euro exchange rates under EU rules in 2015, before being restored to £85,000 in 2017. However, post-Brexit rules now allow the UK to set its own cap.

The PRA will now consult on the new limit and, if approved, it would cover the savings of retail and SME customers from 1 December.

Debate over the deposit protection level has been swirling since the mini-banking crisis of 2023, when lenders including Credit Suisse and Silicon Valley Bank (SVB) collapsed.

The failure of SVB’s UK arm prompted fears that a swathe of startups and small businesses could lose their cash and go bust as a result of relatively low deposit protection levels compared with the US. Across the Atlantic, standard deposit protection is significantly higher, at $250,000 (£193,000).

The Bank of England’s consultation said: “The events of 2023 in the banking sector, including the failure of Silicon Valley Bank UK Ltd, while not requiring FSCS involvement, highlighted the importance of depositor protection in supporting confidence in the financial system.

“Accordingly, the need for robust depositor protection that underpins confidence in the financial system remains a key element of the regulatory framework to minimise the impact of banking failures.”