You will soon have a £120,000 safety net for your savings – but beware these pitfalls, says SYLVIA MORRIS

Savers will get bumper protection on their nest eggs from next week.

As of December 1, the Financial Services Compensation Scheme (FSCS) limit will rise to £120,000 from the current rate of £85,000. For joint accounts, it’ll be £240,000.

This is the maximum amount savers can claim back if their bank or building society collapses.

The limit is per institution, so many people with savings exceeding the limit spread their money across several banks to ensure it is all protected.

But watch out, because if your savings are in banks that are part of the same group, you might be at risk.

HSBC, for instance, runs its own savings accounts and those of First Direct under one banking licence – so the new £120,000 limit covers both brands.

But Marks & Spencer Bank, also part of HSBC, has its own licence, so you get another £120,000. 

Safety net: As of December 1, the Financial Services Compensation Scheme limit will rise to £120,000 from the current rate of £85,000. For joint accounts, it’ll be £240,000

Lloyds and Halifax, though both part of Lloyds Banking Group, each have a licence. 

But with Lloyds your protection is shared with any money you have in its offshoot MBNA, while Halifax shares its licence with Bank of Scotland.

Barclays and Tesco share a licence, as do NatWest and Ulster Bank, and Santander and Cahoot.

And in April (on court approval), Virgin Money accounts will move to Nationwide, giving you only one lot of the new £120,000 cover on money spread across both.

If you expect to bust the limit once the banks merge, you can move cash out – even in the middle of a fixed-rate term – without penalty from February 24 to June 1. 

Savers with Coventry Building Society and Co-op Bank still have separate cover, though they merged at the start of this year.

Ultimately, the FSCS limit increase is good news and it will reduce the number of accounts those with big savings need. 

Since the last rise seven years ago, the amount we hold in banks and building societies – including current accounts – has soared by £600 billion to £1.9 trillion.

The ‘temporary high balance’ limit will also rise from £1million to £1.4million. 

This higher cover runs for six months after you receive a big sum; after you downsize; or get an inheritance or payout from an insurance policy or a tax-free lump sum from a pension, for example.

The new limits kick in on Monday, but don’t expect your bank to inform you soon – providers have six months to update their information sheets.