FSCS threshold to rise to £120k

The amount of money held in banks that is protected by Financial Services Compensation Scheme (FSCS) will increase by £35,000 in December, rising from £85k to £120k.

The FSCS deposit protection scheme means customers can claim back up to £85,000 of their money held in a UK bank account if the bank goes bust. From next month, the amount you can claim back will rise, the Prudential Regulation Authority (PRA) has confirmed.

It’s good news, of course. The limit has not been increased since 2017, and in our view, it was long overdue. When you account for inflation, £85,000 in 2017 is worth £114,255 today.

The FSCS is a scheme that provides security and peace of mind for millions of people, so it needs to reflect the significant rise in inflation that we’ve all experienced since 2017.

Speaking of things not rising with inflation…

The FSCS limit is just one of many thresholds that has been failing to keep pace with inflation.

A contentious issue at the moment is ‘fiscal drag’, which is where frozen tax thresholds drag people into paying more tax.

Normally, tax thresholds rise each year in line with inflation, so that people don’t end up worse off overall. But since 2021, tax thresholds have been frozen. It’s a stealthy way of raising money for the government, without actually ‘raising taxes’.

Frozen thresholds mean that as wages gradually rise, people are pulled into paying tax, or paying tax at a higher rate, when they aren’t actually any better off in real terms (as wage rises just cover inflation).

We’ve put together a calculator to help you figure out how fiscal drag affects you.