The £120,000 Question: How Much of Your Money Is Actually Protected?

5 min read

Ask most people how safe their bank savings are and they will say completely safe. The official answer is more precise. Your savings are protected up to £120,000 per bank. Above that line, their safety rests on the health of the bank holding them. It is worth knowing exactly where that line falls, why it sits where it does and what it does not cover.

How the protection works

The Financial Services Compensation Scheme, or FSCS, steps in if a UK bank, building society or credit union fails. It was set up in 2001 under the Financial Services and Markets Act 2000, bringing several older compensation schemes together under one roof. It is funded by levies on the firms that are authorised by the Prudential Regulation Authority and the Financial Conduct Authority.

On 1 December 2025 its deposit protection limit rose from £85,000 to £120,000 per eligible person, per authorised firm. A joint account held by two people is covered up to £240,000. If a firm fails, the FSCS aims to repay most savers within seven days. In practice payouts often take just two to three days.

There is also temporary cover for up to six months after certain life events, such as selling a home or receiving an inheritance. That cover rose from £1 million to £1.4 million at the same time. After six months the standard limit applies again, which is why anyone holding the proceeds of a house sale needs to know the clock is running.

Why the limit had to rise

The £85,000 limit had been in place since 2017. The FSCS said the increase reflects the latest inflation data. It was the first inflation linked rise in eight years. In plain terms, nearly nine years of rising prices had eaten into the value of the protection. Prices in Britain rose by more than a third over that period, so the old limit protected far less in real terms than when it was set.

That says something important about cash. Even the safety net around your savings has to be rebuilt periodically because the currency it is measured in keeps losing value. The number goes up. The buying power behind it merely stands still.

A limit that has moved many times

The history of the limit tells the same story. Before October 2007 only the first £2,000 was covered in full, with 90 percent of the next £33,000. After the run on Northern Rock, that was changed to 100 percent cover up to £35,000. During the first week of October 2008, as the banking crisis deepened, the limit was raised twice and settled at £50,000. At the end of 2010 it rose to £85,000, roughly in line with the European standard of €100,000.

Then it went down. In 2016 the limit was cut to £75,000, because the European rules were set in euros and the pound had been strong. After sterling fell sharply that year, the Bank of England consulted on the change and the limit returned to £85,000 on 30 January 2017. In other words, the protection on British savings was at one stage set by the exchange rate of another currency. The pound's value decided how much of your own money was safe. The restored £85,000 was said to cover around 98 percent of people in full. The remaining few, by definition those with the largest balances, were left to rely on the bank itself.

The catch most people miss

The limit applies per authorised firm, not per brand. Several well known high street names operate under a single banking licence. Spreading money across two brands within the same group can still leave you with one £120,000 limit between them. It is always worth checking which licence a savings account sits under.

Anything above the limit with a single firm is not protected by the scheme. For anyone holding a large sum, whether from a business sale, a downsizing or years of careful saving, the amount above the threshold is in effect an unsecured loan to the bank. If the bank fails, you join the queue of creditors.

How far protection has come

We wrote last week about the run on Northern Rock in 2007. At that time only the first £2,000 of savings was protected in full, with 90 percent of the next £33,000 covered after that. Today's protection is far stronger. That is genuine progress.

The scheme has also proved it can pay out. In the autumn of 2008 five banks failed, including Bradford & Bingley on 27 September and Icesave on 8 October. The FSCS protected around four million accounts and paid out around £20 billion. To do it, the scheme had to borrow from the Bank of England. That loan was eventually repaid in full, partly from asset sales that were not completed until 2018.

But it also shows that protection is a policy, not a law of nature. It is set by regulators, funded by a levy on the banking industry and ultimately backed by the state. When a crisis is large enough, it is the government that has to find the money. And a government finds money by borrowing it or creating it.

Owning versus lending

This is the distinction physical gold resolves. A deposit is a loan to a bank. A gold coin in your possession is not a claim on anyone. It needs no compensation scheme because there is nothing to compensate. You own the asset outright and its value does not depend on any institution staying solvent.

Gold has served as money for thousands of years and central banks still hold it as a core reserve today. It cannot be printed, diluted or frozen by a failing bank. It carries no limit on how much of it can be protected, because its protection does not come from a scheme at all.

That does not mean cash has no place. Everyone needs money in the bank for bills and for emergencies. Keeping it below the limit with each banking licence is simple good sense. The question is what happens to the rest. Savings that sit above the line year after year carry a risk most people never think about until a bank is in the news.

The tax position on gold coins

There is a further point. Gains on UK legal tender gold coins such as the Britannia and the Sovereign are exempt from Capital Gains Tax for UK residents, because the coins are sterling currency. Gold bars do not share this advantage, so a gain on a bar can be taxed like a gain on any other asset.

For anyone holding sums above the protected limit, it is worth understanding clearly how owning a real asset differs from lending money to a bank. One depends on the strength of an institution. The other depends on nothing but itself.

If you are weighing up the difference, we also looked at how the rules around savings have been changing. Protection limits, tax allowances and interest rates are all set by policy. Gold coins held outright sit outside each of them, which is why so many households treat gold as the part of their wealth that does not rely on anyone else.

Speak to a specialist

If you would like to talk it through, call a specialist on 0208 064 0076, Monday to Friday, 9am to 5pm, or book a call at a time that suits you.

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Sources

This article is for information only. The value of gold can go down as well as up.

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Gold Insights are independent articles, researched and written by our own team at Gold Tier Advisory.