New rule for anyone with less than £120,000 in their UK bank account explained
In a matter of days a new law comes into force across the UK, giving more bank account holders financial protection should their bank go bust.
At present legislation dictates that if a bank, building society or credit union goes into liquidation, customers are protected up to £85,000.
Ultimately, this means that if something happened to your bank, £85,000 of your savings would be guaranteed as safe.
The rule was put in place by the Financial Services Compensation Scheme (FSCS) to protect customers from losing their savings.
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Now, the laws are changing - but what does this mean for you? Let's get into it.
What is the new rule?
The new law means that from 1 December, customers who have anything between 1p and £120,000 will receive financial protection if their payment provider goes bust.
This amendment was made by the FSCS, after being confirmed by the Prudential Regulation Authority (PRA), in line with nationwide inflation.
Previously savings were protected up to £85,000 but, by increasing the cap by £35,000, more people's savings will now be protected under the new rules.
Speaking about the benefits of this new rule, Sam Woods, who works as deputy governor for prudential regulation at the Bank of England and 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."
Who will it impact?
If you have considerably £85,000 or less in your bank account, nothing will change.
But for those with savings as high as £120,000, the extra £35,000 provides added reassurance.
There's also a regulation for those with a 'temporary high balance' - for example, those in receipt of inheritance or funds from a house sale.
This protected figure currently stands at £1m, but will increase to £1.4m from December.
What about joint accounts?
The law applies per person, per bank. This means that people with joint accounts, like married couples and flatmates, will be able to get £240,000 worth of protection.
However, if you have an individual account and a joint account with the same bank, you will still only be eligible to a total of £120,000 in protection.
How can I ensure more safety?
It's important to be aware that if your bank is part of a group, the protection may be split.
For example, as Money Saving Expert explain, First Direct is part of HSBC, so having cash in both banks would still only be covered up to £85,000.
For extra safety, if you have more than £120,000 in your savings, consider spreading your cash between banks that are not grouped.
Lucy Devine