For the UK's contractor industry, where security of deposits is needed to be sure of the ability to pay periodic tax accruals and other important liabilities, a move to increase the UK's deposit protection limit to £120,000 is welcome, writes Nick Biggam, director at Zempler Bank.
Confirmed on November 18th 2025, by the UK's Prudential Regulation Authority (PRA), the move increases the compensation cap under the Financial Services Compensation Scheme (FSCS) from the £85,000 that it was introduced at in 2010.
When does the new £120,000 savings protection limit apply from?
Under the updated rules, the first £120k, not just £85k, that contractors and other depositors hold in current and savings accounts will be returned to them if their bank, building society or credit union fails, noting that this limit applies per eligible person per authorised firm.
The old limit (£85,000) has been unchanged since 2017, with the new limit (£120,000) coming into effect from today, December 1st 2025.
What life events does the new £1.4m 'temporary high balance' limit cover?
From December 1st, the cap for 'temporary high balance' claims will also increase to £1.4million from £1million. This increase to the temporary high balance limit covers qualifying major 'life events' such as these four:
- Selling a primary residence
- Insurance/benefit payouts
- Redundancy payments
- Receiving inheritance.
Temporary high balances are protected for up to six months.
Why is my bank still displaying the old £85k savings protection limit?
Contractors should note that authorised firms will have up to six months to make changes to disclosure materials. Therefore, you might still see the existing lower limits mentioned on bank websites and communications for a period to come.
Before we detail the origin of the PRA's increase to the saver protection cap, which is outlined here by the Bank of England, we think UK contracting will benefit from the two higher limits.
Trust in financial services is essential for businesses, and we believe that the increased limits will ensure our business bank account customers continue to feel confident that their money is safe.
Savings payouts if your bank fails: How did we get here?
The FSCS, which is part of the Financial Services and Markets Act 2000, consolidates different compensation schemes.
Initially set at £85,000 in 2010, the deposit protection limit was temporarily reduced to £75,000 in 2015 due to a stronger pound. But it returned to £85,000 in 2017 following the 'Brexit vote.'
Recent consultations prompted a higher increase than initially proposed, reflecting inflation.
This change is part of a statutory review conducted every five years under the Deposit Guarantee Scheme Regulations 2015.
The adjustment is designed to ensure that an individual's savings remain protected and to maintain confidence in the UK's financial system.
Contractors should note that not all banking service providers are FSCS-covered
It's important to be aware that not all providers of banking services are covered under the protection scheme. It's also worth noting that some bank brands share the same authorisation and therefore, the limit doesn't apply individually to both brands.
Prudent contractors can check whether their money is protected by using this bank and savings protection checker from the FSCS, here.
And we think a fair few contractors will run this helpful checker in the coming days.
Reserves, risks, and rising
Why? Well, contractors often hold large cash reserves for tax liabilities, business expenses, or even to reflect the irregularity of income. The increase in FSCS protection offers more security, but there are still risks if balances exceed £120,000 at any one institution.
It's not the only action limited company contractors should consider, in light of both the savings protection limit and temporary high balance limit rising to £120k and £1.4million, respectively.
Six contractor considerations amid this welcome savings protection limit increase
Here are six actions shrewd contractors may wish to consider in light of these changes:
- Review your cash holdings and banking providers. The higher limits may offer an opportunity to reduce the number of banks you hold accounts with. And where any single institution holds more than £120,000, you might consider redistributing funds across different authorised firms.
- Verify bank licences. Achieve this by using the FSCS checker to confirm whether your banks share a licence. This avoids accidental overexposure.
- Plan for tax and VAT reserves. This way, you can ensure you keep business tax reserves in separate FSCS-protected accounts to minimise risk.
- Explore alternatives for excess cash. Alternatives include Instant Access vs Notice Accounts — while FSCS covers both, liquidity matters for contractors who need quick access to funds.
- Document large transactions. For temporary high balance protection, keep clear records (sale contracts, invoices, inheritance letters) so you can prove eligibility.
- Shop around if your savings exceed £120,000. For amounts above the new FSCS limit, consider National Savings & Investments products (which currently benefit from a 100% HM Treasury guarantee), and other financial products for risk diversification.
Please note, the content in this article does not represent advice from Zempler. Zempler Bank makes no representations or warranties of any kind, explicit or implied with respect to the contents of this article. Without limitation, Zempler Bank specifically excludes and disclaims all express or implied warranties and conditions to the extent permitted by law, and any action taken using such content is strictly at the user's risk.
