Savers and those holding large amounts of cash after a house sale, an insurance payout or receipt of an inheritance will soon receive further protection for their cash.
There are limits to the amount of protection provided when holding cash for all other deposit providers, other than the Treasury-backed NS&I. Currently, the Financial Services Compensation Scheme (FSCS) offers individual account holders protection up to £85,000 (£170,000 joint account) if the financial firm they’ve used fails to meet its obligations if it goes out of business.
From 1 December 2025, FSCS is raising the deposit protection limit from £85,000 to £120,000 per person, per authorised bank, building society or credit union. This change, confirmed by the Prudential Regulation Authority, reflects inflation and aims to strengthen confidence in the UK banking system.
For those experiencing major life events, the protection for temporary high balances will also rise — from £1 million to £1.4 million, covering situations such as the sale of your main home, receiving an inheritance, or an insurance payout, and applies for six months from the date the funds become yours.
FSCS and the deposit protection limit
The new limit will apply to bank and financial firm failures from 1 December 2025, meaning greater amounts of cash will be protected. While this is welcome news for savers, there are some key points to keep in mind:
• Some brands share the same banking licence, and if they do, the new £120,000 limit is combined across all accounts you hold, not per brand, so this is vital to check before spreading your savings. If however, you hold money in two accounts with separate banking licences, your total protection would be £240,000.
• Protection is per person, so a couple could have up to £240,000 covered in a joint account
• There are strict rules around the temporary high balance protection limit. The new £1.4 million limit will only apply to specific life events — not to the sale of a second home or a buy-to-let property. Timeframe here is important to bear in mind as this protection lasts just six months.
Risks of holding high levels of cash
This is a positive development and will offer greater peace of mind, but it’s only beneficial if your accounts are structured correctly. It doesn’t eliminate all risks associated with holding large amounts of cash, and savers should still apply caution.
While some people hold high cash balances, perhaps to meet capital expenditure in the short-term or just to provide extra peace of mind, there are unseen risks - namely inflation. Even with higher FSCS protection, cash sitting in low-interest accounts loses purchasing power over time.
Holding cash in savings accounts can also attract tax on the interest. Basic-rate taxpayers can earn £1,000 a year in interest tax-free, while higher-rate taxpayers can earn £500 tax-free. It is important to make use of tax wrappers to avoid unnecessary tax on the interest.
Review your savings and investment strategy
This raises an important question: how should you structure your cash holdings now? And is holding large sums in cash the best approach or are there alternatives to consider?
While it’s important to maintain an emergency fund, large cash holdings may mean missing out on potential growth from investments. If you hold large balances, have recently sold a property, or received an inheritance, it’s worth reviewing how much of your money is genuinely protected, how to ensure it is, and if your money could work harder for you.
These can help your wealth grow and outpace inflation, though they carry risk — so advice is essential.
The FSCS increase is positive, but it shouldn’t change the principle that cash is for short-term needs and security, not long-term growth. If you’re holding large sums, now is the time to review your strategy. A mix of protected savings and well-structured investments can help you achieve both safety and growth.
Please get in touch if you would like to speak to our financial planning team, by calling 0808 144 5575 or email help@armstrongwatson.co.uk.
