The Prudential Regulation Authority (PRA) has confirmed that the Financial Services Compensation Scheme (FSCS) deposit protection limit will increase from £85,000 to £120,000 from the start of December.
The new threshold applies per depositor, per PRA-authorised bank, building society or credit union. The PRA have confirmed that HM Treasury has approved the change.
This is the first change to the limit since 2017 and follows a consultation earlier in the year. The PRA had initially proposed that the limit should rise to £110,000, but feedback provided in the consultation and the latest inflation data prompted a higher final figure.
Temporary High Balances Limit Also Rising
Alongside the core protection limit, the cap for Temporary High Balances (THBs) will increase from £1 million to £1.4 million on 1 December.
THB protection applies to qualifying life events that can temporarily increase a customer’s account balance, such as buying or selling a house or insurance claim payouts.
Implications for Your Business
The increase in limit will be good news if you hold cash reserves in your business to cover working capital, payroll and other running costs.
It is worth noting that the limit continues to be applied ‘per depositor, per PRA-authorised institution’. This means that if you are eligible and hold cash reserves that exceed the deposit protection limit, you could gain further protection by spreading your funds across different authorised institutions.
It is worth checking whether a banking group is operating multiple brands under a single licence. This means you would only receive a single protection limit for the total amounts held across those brands.
Taking a Wider Look at Cash
For many owner-managed businesses, cash reserves naturally rise and fall throughout the year. If you find that your balances regularly build up beyond what the business needs for day-to-day operations, the increase in the FSCS limit could be a useful prompt to review how much cash the business actually needs to hold.
Spreading funds between different banks can increase the level of protection available, but it can also be sensible to take a step back and consider whether those reserves are serving a useful purpose in the business. A simple cash flow review can help identify the amount needed for routine expenses, tax payments and any planned spending over the coming months.
Where cash consistently exceeds this level, you may want to consider:
- Are there investment opportunities for the business that would fit with your business growth plans?
- Would withdrawing funds, such as by dividends, better help you achieve your personal goals?
The right choice for you will depend on your personal and business circumstances, tax considerations and your plans for the business.
If you would like tailored advice or simply assistance in clarifying what level of reserves your business needs, please get in touch. We would be happy to help you!
