Quick Read
- FSCS deposit protection rises to £120,000 per person from December 2025.
- Joint accounts will be covered up to £240,000 per institution.
- Temporary high balance protection increases to £1.4 million for six months.
- Inflation and cost-of-living pressures are driving changes in savings behaviors.
- NS&I and other banks have cut rates, making it vital for savers to shop around.
FSCS Protection Limit Rises: A Timely Move Amid Inflation
Starting 1 December 2025, the UK’s Financial Services Compensation Scheme (FSCS) will boost its protection limit from £85,000 to £120,000 per person per banking institution. For joint accounts, this means up to £240,000 is protected—£120,000 for each account holder. The change is more than just a headline: it’s a direct response to sustained high inflation that’s impacted both savers’ security and the real value of money, as noted by Forbes and the Bank of England.
The FSCS is a government-backed safety net. If a UK-authorised bank, building society, or credit union fails, the scheme steps in to reimburse customers up to the protected limit. Importantly, this protection applies per person, per institution. So, if someone holds accounts with different banks and—though unlikely—all those banks go bust, each account is covered up to the full limit.
However, the rules are nuanced. Joint accounts aren’t treated as separate pots: the coverage for a joint account uses up each holder’s individual allowance. And many banks operate under multiple brands—for instance, HSBC and First Direct are counted as one institution for FSCS purposes, meaning your total protection across both is capped at £120,000.
Temporary High Balances: Enhanced Security for Major Life Events
The FSCS will also raise the protection for ‘temporary high balances’—funds from life events like property sales or large compensation payouts—from £1 million to £1.4 million. This elevated cover lasts for six months, giving people breathing room during times when their accounts temporarily swell far above the usual limit. The rationale is straightforward: major life events shouldn’t put hard-earned money at risk.
The scheme, overseen by the Bank of England’s Prudential Regulation Authority, reviews its limits every five years. This latest increase is a direct reflection of economic realities, with inflation currently at 3.8%, almost double the Bank’s target. For savers, the new limits offer reassurance, but they also signal the government’s acknowledgment of how quickly costs—and risks—can change.
Savers’ Behaviors: More People Dipping Into Their Funds
Against this backdrop, British savers are navigating tricky waters. Recent research from Raisin’s Great British Savings Report found that 60% of adults dipped into their savings over the past year, often to pay day-to-day bills. In Cardiff, 41% used savings for essentials—double the national average. Other common reasons for withdrawals included travel, unexpected repairs, debts, and healthcare costs.
This growing reliance on savings for daily needs is a clear symptom of the cost-of-living crisis. The report also revealed that many savers don’t shop around for the best accounts; 41% chose their account on the first day they saw it, and 35% admitted to skimming the terms. Fixed-term accounts can penalize early withdrawals—sometimes up to 90 days’ interest, which on a £5,000 balance at 4% could mean a £50 penalty.
On the flip side, easy-access accounts allow penalty-free withdrawals, but usually at the cost of lower interest rates. Some platforms, like Raisin, now offer to automatically move savings to better-value providers, helping passive savers get more out of their money.
Market Trends: Changing Rates and New Incentives
The savings landscape is shifting quickly. National Savings and Investments (NS&I), the government-backed savings bank, has made several moves in 2025—raising, then cutting, rates on British Savings Bonds and reducing the Premium Bonds prize pot. As of December, NS&I’s two-year Bond pays 3.60% AER, down from 4.10%, and its three-year Bond pays 3.50% AER, down from 4.00%. These rates now trail the market average, which Moneyfacts puts at 3.89% AER for longer-term bonds.
Meanwhile, market leaders like Atom Bank offer up to 4.60% AER on two- and three-year fixed rate accounts, showing that savers willing to shop around can still find competitive returns. The Premium Bonds prize fund has also shrunk, with the effective rate of return dropping from 4.15% to 4.00%. NS&I’s cuts mirror a wider cooling in the savings market following the Bank of England’s decision to lower the Bank Rate to 4.75%.
Switch incentives have become a battleground for banks seeking new customers. Lloyds Bank’s £200 switch offer leads the market, with perks like cinema tickets or a Disney+ subscription. The Co-operative Bank and Nationwide offer up to £175 for switching, while First Direct and TSB compete with similar bonuses. These incentives aim to lure savers away from familiar brands—a challenge, as Raisin’s report shows, with over a quarter of respondents expressing distrust in banks and sticking to household names.
Barriers and Motivators: Why Many Brits Struggle to Save
Raisin’s survey highlights the hurdles facing UK savers. More than a third (34%) have no savings or less than £1,000 set aside. Stress about the financial future is widespread, especially among those aged 35 to 44. Only 23% are actively saving for retirement, and for those under 25, the figure drops to just 8%.
High living costs and compulsive spending are major reasons for withdrawals, particularly among younger people who dip into their savings six times a month on average. A significant portion of savers also keep their money in low-interest accounts, missing out on potential returns. The Bank of England estimates that £253 billion sits in accounts earning no interest—despite easy-access products offering rates above 5%.
Traditional high-street banks remain the most popular choice, but digital-only solutions are gaining ground among younger savers. Short-term goals, like holidays or Christmas, are more motivating for many than long-term financial planning. Nearly three-quarters agree that having a clear savings objective helps them stay on track.
Kevin Mountford, co-founder of Raisin UK, summed it up: “It’s a worrying sign of the times that so many Brits are without a financial safety net, particularly younger people who are finding it increasingly hard to save.”
Looking Ahead: How Should Savers React?
The FSCS increase is a welcome change for those with substantial savings, but it’s not a substitute for vigilance. Savers should check which brands are grouped together under the same banking license, review account terms before signing up, and consider spreading deposits across institutions if they hold more than the new limit.
For those with temporary high balances, such as after selling a house, the expanded cover offers peace of mind—but only for six months. Afterwards, funds above the standard limit may be at risk if the bank fails. And while fixed-term products can lock in higher rates, easy access accounts may offer flexibility at the cost of returns.
The competitive world of switch bonuses and new account incentives is tempting, but only valuable if the underlying product meets your needs. As interest rates and market conditions continue to shift, the most effective savers will be those who actively review their options and aren’t afraid to move their money.
The FSCS’s increased protection signals a government response to inflation and changing financial habits, but it also highlights the importance of informed, proactive saving. In a climate where rates, products, and incentives are in flux, the real safeguard is a combination of government-backed security and personal vigilance.