When Big Life Events Mean Big Bank Balances: How the FSCS Protects You
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All contents are based on our understanding of current legislation, which is subject to change, any information provided here is only correct at the time of posting.
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There is a risk to your capital and you may not get back the full amount invested. The value of investments, as well as the income from them, can fall as well as rise.
When it comes to your money, peace of mind is everything. Most of us don’t spend too much time worrying about whether our bank is safe but knowing that your savings are protected if the unexpected happens is reassuring. That’s where the Financial Services Compensation Scheme (FSCS) comes in.
The FSCS provides the UK’s safety net for savers. If your bank, building society, or credit union were to fail, the FSCS may step in to protect eligible deposits. Normally, the standard level of protection is £85,000 per person, per banking group. For joint accounts, this rises to £170,000.
For many people, this is more than enough cover. But what about those occasions in life when you might find yourself holding a much larger cash balance, perhaps after selling a house, receiving an inheritance, or receiving an insurance payout? These are times when, through no fault of your own, you might temporarily have a much higher balance than usual.
That’s exactly why Temporary High Balance protection exists. It gives you extra protection, up to £1 million for six months, so you don’t have to worry about moving money around at a time when you probably have more important things on your mind.
Why does this protection exist?
Life doesn’t always happen in neat, predictable steps. There are moments when large sums of money land in your account for legitimate reasons, but only for a short time.
Take the example of selling your home. If you’ve sold your property and are waiting to buy your next one, you could be holding hundreds of thousands of pounds in the bank. It may not be practical to try and split that between different banks just to keep within the £85,000 limit.
Similarly, if you’ve received an insurance payout following a serious injury, or an inheritance after the death of a loved one, the last thing you should need to worry about is whether your bank is secure. The FSCS recognises this, which is why THB protection was introduced.
What counts as a Temporary High Balance?
The FSCS provides cover up to £1 million for six months from the date the funds are credited to your account (or the date you first become entitled to them). This is in addition to the standard £85,000 limit.
Situations that qualify include money received from:
The sale of your main home (not second homes or investment properties)
Inheritances
Divorce or dissolution of a civil partnership settlements
Redundancy payouts
Insurance payouts (for example, for injury, disability, or wrongful conviction)
Compensation for unfair dismissal
Personal injury compensation
Wrongful conviction compensation
It’s worth noting that this list is not exhaustive, but it gives you an idea of the kinds of life events that qualify.
How does it work in practice?
Let’s look at an example.
Imagine you’ve sold your house for £450,000. The proceeds are paid into your bank account while you finalise the purchase of your next home. Normally, the FSCS would only cover you up to £85,000 if your bank failed. But because this is the result of selling your main residence, the Temporary High Balance protection applies. This means your full £450,000 is protected for six months, giving you time to complete your next purchase without needing to split the money across multiple banks.
Another example could be receiving a £300,000 inheritance. Again, this would be fully covered under THB protection for six months, after which the standard £85,000 limit would apply.
What doesn’t qualify?
There are a few important exclusions to be aware of. Not every large deposit is automatically eligible for THB protection. For example:
Money received from the sale of a second home or buy-to-let property would not qualify.
Routine savings built up over time are not considered temporary high balances.
Lottery winnings or gambling payouts are also not covered under THB rules.
In short, THB protection is designed for those major life events that the regulators believe warrant additional safeguarding.
How do I claim if the worst happens?
If your bank were to fail, the FSCS aims to compensate most eligible depositors within seven days. If you’re relying on THB protection, you may be asked to provide evidence of the source of the funds, such as a house sale contract, inheritance paperwork, or insurance settlement letter.
This is why it’s important to keep clear records of where the money has come from. Without evidence, the FSCS may only be able to pay the standard £85,000 limit.
What should you do if you receive a large sum?
If you know you’re going to receive a significant sum of money, it’s worth planning ahead. Think about:
Timeframes – how long will you need to hold the money before it is used (e.g. for a house purchase)?
Purpose – does it fall under a qualifying life event for THB protection?
Diversification – if you are holding money beyond six months, you may want to spread it across institutions or consider other options.
Remember, THB protection lasts for six months only. After that, the standard £85,000 FSCS limit applies.
Final thoughts
Temporary High Balance protection is one of those little-known but hugely valuable safeguards that can provide peace of mind at some of life’s most stressful moments. Whether you’re selling a home, receiving an inheritance, or being compensated for an injury, it’s reassuring to know that up to £1 million of your money is protected for six months.
That said, it’s not a permanent solution. If you find yourself holding large sums beyond six months, it’s important to review your options and ensure your money is structured securely and tax-efficiently. This is where good financial planning makes all the difference.