New rule coming into place for anyone with less than £120,000 in UK bank account
The UK legislation will come into play from 1 December
As of 1 December, a new law will be implemented in the UK, which will provide customers who have anything between 1p and £120,000 with financial protection if their payment provider goes bust.
Since 2018, previous legislation meant that, in cases where authorised banks, building societies or credit unions go into liquidation, their customers were only protected for as much as £85,000.
This was put in place by the Financial Services Compensation Scheme (FSCS) in a bid to make sure customers wouldn't lose last amounts of savings during a financial crash of some sort.
Whilst this doesn't really make a difference to anyone with less than this amount, it was certainly beneficial to those bringing home a considerable income.
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It did pose an issue, however, for anyone with much more than this amount in their bank account, as they were only protected up to £85,000.
As we say, however, now that this cap his been increased by £35,000, it means more of their savings will be protected if the worst should happen.
This amendment was made by the FSCS, after being confirmed by the Prudential Regulation Authority (PRA), in line with nationwide inflation.
As broken down by MoneySavingExpert, December's incoming change will mean that up to £120,000 will be protected per individual, per UK-regulated financial provider. This will not apply per account.
Thankfully, there's nothing that customers need to do ahead of this new rule - no application forms to fill in, etc.
If anything, the law serves to give peace of mind to those worried about how much cash they might lose out on if their bank goes out of business. So, basically, sit tight, knowing that, if that happens, you'll automatically get £120,000 back.
For people with joint accounts, like married couples and flatmates, since this law applies per person, per bank, you'll each get £240,000 back.
It's important to note, however, that this isn't an extra allowance. It's a guarantee, payable within seven days of the financial provider going under.
As we say, however, if you're reading this with considerably less than £120,000 in your bank account, nothing is expected to change. Every penny of yours up to this amount is safe and sound.
For those who stand to lose much more because of inheritance, house sales or an insurance payout - despite the cap having been increased - the FSCS has put a back-up plan in place for you.
In some cases, these high amounts fall under a certain category and are considered a 'temporary high balance', which has its own limit.
This protected figure currently stands at £1m, but will increase to £1.4m from December.
Speaking of the benefits of this new rule, Sam Woods, who works as deputy governor for prudential regulation at the Bank of England, as well as the PRA's chief executive, said (via the BBC): "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."
FSCS chief exec Martyn Beauchamp added: "We welcome today’s announcement from the Prudential Regulation Authority confirming that the FSCS deposit protection limit will increase. This rise ensures that consumers can feel confident their money is safe, from the very first penny up to £120,000.
"At FSCS, we know that trust in financial services is vital for stability and growth. This enhanced protection will reassure consumers and support confidence in the UK’s financial system."
Rhianna Benson