Huge change to banking rules that will boost protection for millions of savers by up to £25,000 MORE

MILLIONS of savers are set to get an extra £25,000 worth of their savings protected under plans by the banking watchdog.

The Prudential Regulation Authority (PRA), which oversees banking in the UK, has proposed increasing the amount of savings that are protected if a financial firm goes bust to up to £110,000.

If you put your money into a regulated financial firm such as a bank, building society or investment firm, some of your money is protected through the Financial Services Compensation Scheme (FSCS).

Also known as the “lifeboat fund”, the scheme is funded by all regulated financial firms and pays out compensation to savers if their financial provider goes out of business.

Since 2017, the maximum amount the FSCS can pay out has been £85,000.

But under huge new plans by the PRA, this limit is set to increase to £110,000 to take into account increased inflation over the past few years.

The increase is now subject to a consultation, which means stakeholders across the financial services industry will have a say before a final decision is made.

The consultation is expected to close in November and, if the plans go ahead, the new higher limit will come into effect from December 1 this year.

Over the past three years, the FSCS has paid out £10.1million in compensation to savers, which it said largely related to small credit union failures.

Credit unions are where locals pool their money together to lend to one another at reduced rates. These have surged in popularity over the past few years, but several have recently gone bust.

Sam Woods, deputy governor for Prudential Regulation and CEO of the PRA, said: “Confidence in our financial system is an essential foundation for economic growth.

“We want to support confidence in our banks, building societies and credit unions by raising the amount that people can keep in their account which is covered by the deposit guarantee scheme to £110,000 per person, so all that money is safe even if the firm fails.”;

How does the FSCS work?

If your financial provider becomes insolvent, which means it cannot meet its debts or obligations, you may be able to make a claim through the FSCS.

To be eligible, the firm must be regulated by the City watchdog, the FCA, or the PRA.

You must have lost, or be set to lose money as a result of the firm going bust in order to qualify for compensation.

Ir your bank, building society or credit union goes insolvent – sometimes known as “failing” – you should get compensation up to £85,000 automatically.

For other claims, you may need to make a claim online. Visit: claims.fscs.org.uk to get started.

You will need to enter some basic details and may need to send some supporting documents as evidence.

Visit the FSCS's website at fscs.org.uk/making-a-claim/claims-process/before-claiming/ to see what to do for each type of financial firm.

For example, complaints against an insurer may require you to provide your policy documents, while for investment claims you will need proof that the firm gave you advice.