Currently, deposits of up to £85,000 are protected by the Financial Services Compensation Scheme, which reimburses savers if their bank or building society goes bust. However, as of January 2016, the limit will fall to just £75,000.
As a result, savers with a fixed-rate deal can request to withdraw money from their provider penalty free, without charge or loss of interest. Banks and building societies will let those with more than £75,000 in one account take out up to £10,000 as a one-off withdrawal until December 31st.
Please note that if you have a cash ISA that will be affected by the reduction in the level of protection, you can transfer the excess savings directly to another cash ISA account at a different bank whilst retaining the tax free status. It is important to remember that you can only open one cash ISA in the same tax year, so if you have already opened a cash ISA this year, separate from the cash ISA that contains £85,000, you can transfer the excess savings to this cash ISA if their rules allow it.
However, if the £85,000 cash ISA is held in an account set up this year, you won't be able to open a new cash ISA in order to transfer the excess £10,000. If this is the case, but you still wish to withdraw the money, you will lose its tax-free status. However, due to a new perk being introduced next year, there may still be no tax to pay. From 6th April 2016, the government will allow savers to earn up to £1,000 a year tax-free interest if you're a basic rate taxpayer. Higher rate taxpayers will be able to earn £500 from their savings before interest is taxed at their highest rate.