The PRA Proposes Raising FSCS Deposit Protection Limit to £110,000

On 31 March 2025, the Bank of England Prudential Regulation Authority (PRA) announced a significant proposal: raising the Financial Services Compensation Scheme (FSCS) deposit protection limit from the current £85,000 to £110,000. This move marks the first change in the limit since 2017 and reflects an effort to keep pace with inflation and evolving financial conditions. It also signals a broader commitment to reinforcing trust in the UK’s financial system at a time when depositor confidence is paramount.

Why the Limit Is Changing

The FSCS deposit protection limit exists to reassure savers that their eligible deposits are safe even in the event of a bank, building society, or credit union failure. Since the limit was last adjusted in January 2017, the economic landscape has shifted significantly. Inflation has eroded the real value of money, and as a result, the PRA conducted a statutory review under the Deposit Guarantee Scheme Regulations (DGSR) to ensure the existing protections remained relevant.

According to the PRA’s analysis, the real-terms value of the £85,000 protection set in 2017 would now be equivalent to approximately £113,669. Rounding this to £110,000, the PRA has put forward a proposal that aligns with economic data while also choosing a round number that is likely to be more memorable and therefore more effective at promoting public awareness.

Interestingly, data from the FSCS shows that while around 98% of depositors were fully protected by the £85,000 limit in 2018, this had declined slightly to 97% by 2024. The proposed £110,000 threshold would have covered around 99% of depositors in 2024, restoring a higher level of coverage and enhancing system resilience.

Temporary High Balances: Protection for Major Life Events

The consultation paper also includes a proposal to raise the protection limit for Temporary High Balances (THBs) from £1 million to £1.4 million. THBs are relevant in specific life scenarios, such as proceeds from the sale of a home, insurance settlements, or redundancy payments. Introduced in 2015, the THB protection was designed to cover short-term spikes in balances due to such one-off events, providing peace of mind during vulnerable moments in people’s lives.

The proposed increase to £1.4 million is based on consumer price inflation since the scheme's introduction and is intended to ensure the limit remains sufficient to cover the majority of property sales and other relevant events. According to Land Registry data, the current £1 million limit covers around 97% of property transactions, but the £1.4 million limit would increase coverage to approximately 98.5%.

📆 Key Timeline of Events

• 31 March 2025 PRA publishes Consultation Paper CP4/25 with full details of the proposed changes
• 30 April 2025 Deadline to respond to proposals related to the Bank Resolution Bill
• 30 June 2025 Deadline to respond to proposals related to FSCS deposit protection limit
• November 2025 PRA expected to issue final policy statement and seek HM Treasury approval
• 1 December 2025 Proposed implementation date: new deposit protection limits would take effect
• By 31 May 2026 Deadline for firms to update disclosure materials (info sheets, posters, etc.)

What This Means for Firms and the Industry

If the proposal is implemented, the new deposit protection limits will take effect on 1 December 2025, and firms will be required to update their systems, including their Single Customer View (SCV) frameworks, to reflect the changes. These systems are critical in the event of a firm’s insolvency, as they allow the FSCS to quickly identify and compensate eligible depositors.

To support the rollout, the PRA proposes a transitional period until 31 May 2026 for updating disclosure materials. These include information sheets, compensation posters and stickers, and exclusions lists that banks provide to customers to explain the scope of FSCS protection. These documents will be revised not only to reflect the new limits but also to simplify language and make them easier to understand now that the UK is no longer bound by EU-mandated phrasing.

Additionally, the PRA is considering clearer requirements for banking hubs or shared third-party premises to display depositor protection information effectively.

Financial and Operational Impact

The proposal is not without cost. The estimated one-off implementation cost to the banking industry is around £44.2 million, with larger firms expected to bear the highest burden. The FSCS itself expects to incur around £200,000 in system updates and public awareness efforts. However, the PRA believes these costs are proportionate when compared to the broader benefits of increased depositor confidence, reduced risk of bank runs, and enhanced financial stability.

If a bank were to fail under the new limit, compensation payouts would naturally be higher. For example, a hypothetical failure of a mid-sized bank could result in an additional £60 million in FSCS claims compared to the current protection level. But this scenario is considered manageable, especially given that the total FSCS levy cap remains at £1.5 billion annually, and recent payout activity has been low, just £10.1 million in the last three years, mainly related to small credit union failures.

The Bigger Picture: Financial Stability and Resilience

Beyond consumer protection, this change is part of a broader set of proposals aimed at reinforcing financial stability. In parallel, the PRA is consulting on rule changes needed to implement the upcoming Bank Resolution (Recapitalisation) Bill, which would enable FSCS funds to be used to recapitalise failing firms and support their transfer or sale. This mechanism was inspired by lessons learned during the resolution of Silicon Valley Bank UK in 2023.

The aim is to ensure that, even if a firm fails, customers continue to have access to their funds and the financial system absorbs the shock in a controlled way. It reflects a proactive approach to modernising the UK’s resolution regime and ensuring it is fit for purpose in a more interconnected and digitally enabled financial environment.

What Happens Next?

The PRA has opened a consultation period for public feedback. Responses on the proposed changes to the FSCS limits are due by 30 June 2025, while feedback on the Bank Resolution Bill-related proposals must be submitted by 30 April 2025. Final rules are expected to be confirmed in November 2025, following review of the consultation responses and subject to approval by HM Treasury.

In the meantime, firms are advised to begin preparing for the potential changes, particularly in terms of system readiness and customer communication strategies.

The proposed increase to the FSCS deposit protection limit is a timely and thoughtful response to the changing economic environment. It not only adjusts for inflation but also reinforces trust in the UK banking system, giving consumers renewed confidence in the safety of their savings. At a time when public faith in financial institutions is a vital component of economic growth, this is more than just a technical adjustment, it’s a strategic move that reflects the PRA’s dual mandate to protect both consumers and the financial system.

Stay tuned for updates as the consultation progresses, and if you’re in the banking or fintech sector, now is the time to ensure your systems and disclosure practices are ready for the next chapter in depositor protection.