The Prudential Regulation Authority proposes raising FSCS deposit protection limit to £110,000

EthicsGradient

Since the £85k limit comes up quite often here, this looks of interest.

The Prudential Regulation Authority proposes raising FSCS deposit protection limit to £110,000 | Bank of England

The Prudential Regulation Authority (PRA) has today proposed to raise the deposit protection limit of the Financial Services Compensation Scheme (FSCS) from £85,000 to £110,000.

The deposit protection limit – which represents the maximum amount of money the FSCS typically protects should a depositor’s bank, building society or credit union become insolvent – has been set at £85,000 since 2017.

The proposed increase takes into account inflation since the limit was last changed, and is designed to give consumers confidence that their money is safe if their UK-authorised bank, building society or credit union fails. If taken forward, the new limit would apply to firms that fail from 1 December 2025.

...

1. The consultation opens on 31 March 2025. Responses in relation to the proposals in connection with the limit of protection available from the FSCS are requested by 30 June 2025 whilst responses in relation to the proposals in connection with the implementation of the Bank Resolution (Recapitalisation) Act are requested by 30 April 2025.
2. The PRA expects to confirm the outcome of its consultation in November 2025, with any change to the deposit protection limit requiring approval from HM Treasury.

eskbanker

I can understand the logic behind increasing the figure in line with inflation (I see the intention is to bump up the temporary high balance protection to £1.4m too) but it seems to be largely about the optics and potential rather than anything based on actual history, given the minuscule historical level of deposit guarantee claims:

Over the three financial years 2021/22, 2022/23 and 2023/24, the FSCS declared 11 credit unions in default along with one small bank. The FSCS paid compensation of £10.1 million in relation to deposit claims over the period.

EthicsGradient

eskbanker said:

I can understand the logic behind increasing the figure in line with inflation (I see the intention is to bump up the temporary high balance protection to £1.4m too) but it seems to be largely about the optics and potential rather than anything based on actual history, given the minuscule historical level of deposit guarantee claims:

Over the three financial years 2021/22, 2022/23 and 2023/24, the FSCS declared 11 credit unions in default along with one small bank. The FSCS paid compensation of £10.1 million in relation to deposit claims over the period.

"Potential" is all-important, for a guarantee.

masonic

I note this press release refers specifically to the protection for savings. It would be rather odd to raise this limit, but leave the protection for investments at £85k.

Section62

masonic said:

I note this press release refers specifically to the protection for savings. It would be rather odd to raise this limit, but leave the protection for investments at £85k.

...especially with the background chatter about reducing the Cash ISA limit to encourage people to invest instead.

Olinda99

what I would like is for all cash isa savings to be fully protected

masonic

Olinda99 said:

what I would like is for all cash isa savings to be fully protected

Even if this is achieved by implementation of the fabled £100k cap on ISA savings?

400ixl

Given the government wants people to invest, not save, why would they want to increase this? I can understand the temporary cover increasing though.

eskbanker

EthicsGradient said:

eskbanker said:

I can understand the logic behind increasing the figure in line with inflation (I see the intention is to bump up the temporary high balance protection to £1.4m too) but it seems to be largely about the optics and potential rather than anything based on actual history, given the minuscule historical level of deposit guarantee claims:

Over the three financial years 2021/22, 2022/23 and 2023/24, the FSCS declared 11 credit unions in default along with one small bank. The FSCS paid compensation of £10.1 million in relation to deposit claims over the period.

"Potential" is all-important, for a guarantee.

Of course, but I was expecting there to be some analysis of the effect of the limit being £85K, i.e. the number of claims where there was only a partial reimbursement at that level, versus how many more would have been fully settled had the limit been upped to £110K, and my suspicion is that there were few, if any, fitting that! 

EthicsGradient

eskbanker said:

EthicsGradient said:

eskbanker said:

I can understand the logic behind increasing the figure in line with inflation (I see the intention is to bump up the temporary high balance protection to £1.4m too) but it seems to be largely about the optics and potential rather than anything based on actual history, given the minuscule historical level of deposit guarantee claims:

Over the three financial years 2021/22, 2022/23 and 2023/24, the FSCS declared 11 credit unions in default along with one small bank. The FSCS paid compensation of £10.1 million in relation to deposit claims over the period.

"Potential" is all-important, for a guarantee.

Of course, but I was expecting there to be some analysis of the effect of the limit being £85K, i.e. the number of claims where there was only a partial reimbursement at that level, versus how many more would have been fully settled had the limit been upped to £110K, and my suspicion is that there were few, if any, fitting that! 

But one effect of setting the compensation limit at £85k is that people then limit their accounts to £85k, so that you don't know if people would have held larger amounts if they had been covered. They could either do a survey - "if the compensation limit were higher, would you hold larger amounts?" - or just say, as the justification using inflation does, that they think this is the "fair" or "reasonable" amount now.

masonic

EthicsGradient said:

eskbanker said:

EthicsGradient said:

eskbanker said:

I can understand the logic behind increasing the figure in line with inflation (I see the intention is to bump up the temporary high balance protection to £1.4m too) but it seems to be largely about the optics and potential rather than anything based on actual history, given the minuscule historical level of deposit guarantee claims:

Over the three financial years 2021/22, 2022/23 and 2023/24, the FSCS declared 11 credit unions in default along with one small bank. The FSCS paid compensation of £10.1 million in relation to deposit claims over the period.

"Potential" is all-important, for a guarantee.

Of course, but I was expecting there to be some analysis of the effect of the limit being £85K, i.e. the number of claims where there was only a partial reimbursement at that level, versus how many more would have been fully settled had the limit been upped to £110K, and my suspicion is that there were few, if any, fitting that! 

But one effect of setting the compensation limit at £85k is that people then limit their accounts to £85k, so that you don't know if people would have held larger amounts if they had been covered. They could either do a survey - "if the compensation limit were higher, would you hold larger amounts?" - or just say, as the justification using inflation does, that they think this is the "fair" or "reasonable" amount now.

A better way would be to look at the various surveys of total savings that are out there. You are right that the limit would distort the market with respect to actual claims, and the tendency would be towards keeping savings together if there were no external factors involved.