Under the Financial Services Compensation Scheme (FSCS), cash in UK-regulated banks, building societies and credit unions is covered up to a value of £85,000 per person, per financial institution, if the provider were to go bust.

But in 2015, the FSCS introduced a ‘temporary high balance’ protection for deposits up to £1m where savers can prove the money came from a ‘major life event’.

This means that in the six months after depositing cash from a home sale, divorce, redundancy, or compensation in respect of death, the money (up to £1m) would be protected under the scheme.

However, due to the impact of Covid-19 and in recognition that some people have reduced access to banking services, the Prudential Regulation Authority (PRA) has temporarily extended the FSCS coverage for these temporary high balances from six months to 12 months.

It applies to deposit-taker failures after 6 August 2020 with deposits protected until February 2021.

If a qualifying deposit was made in September 2020, the protection will run until September 2021, FSCS confirmed.

For a temporary high balance made from 1 February 2021, the protection will revert back to six months.

Caroline Rainbird, FSCS chief executive, said: “The coronavirus pandemic has been very worrying for everyone, and people are understandably concerned about the possibility of losing their temporary high balance should their deposit taker fail.

“The temporary extension of FSCS’s protection from six to 12 months will do much to reassure them should the worst happen during these uncertain times.”