The Financial Services Compensation Scheme is extending the protection it offers for large deposits.

The lifeboat fund has announced that its so-called ‘temporary high balance’ facility will be temporarily extended from six to 12 months for deposit-taker failures occurring from Thursday, 6 August 2020.

The facility is designed to protect “exceptional and short-lived deposits” of up to £1m should the deposit taker fail.

It is meant to cover funds deposited in order to buy a house, for example, or those resulting from a divorce, redundancy or compensation payment after a death.

Given the impact of Covid-19 has had on the residential property and investment markets, the Prudential Regulation Authority has decided to extend FSCS coverage on a temporary basis.

This is because some people will have reduced access to banking services, and large-balance depositors will now need a longer protection period due to Covid-19.

For deposit-taker failures after 6 August 2020, the extension will apply to both new and existing deposits received.

Money deposited into an account with an authorised UK bank, building society or credit union in February 2020, with the six-month deposit coverage due to end in August 2020, will now be protected until February 2021.

If a qualifying deposit is made in September 2020, coverage would run until September 2021, as opposed to March 2021.

It will then go back to six months only from February next year,

FSCS chief executive Caroline Rainbird says: “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.”

The extension will only apply to deposit-taker failures that occur after 6 August, when the extension comes into force.