Savers are to enjoy a new deposit guarantee limit of £85,000 from the start of 2011.
The amount is the Sterling equivalent of the €100,000 deposit compensation limit which comes into force in all European Economic Area member states at the end of the year.
The regulator also took the opportunity to confirm further changes which will come into effect at the same time.
These include fast payout rules, which set a target of a seven day payout for the majority of claimants, with the remainder having to be paid within the required 20 days, and gross payout, which protects customers by ring fencing their deposits if they have savings and loans with the same firm.
Currently, any outstanding loan or debt would be deducted from any compensation.
This new pan European requirement replaces the existing UK arrangement which has been in place since 2009, and which allowed for separate compensation cover for customers with deposits in two merging building societies.
"The need to maintain customer confidence in the banking system is one of the key lessons from the financial crisis," said Sheila Nicoll, director of conduct policy at the FSA.
"Today's announcement completes a radical overhaul of depositor compensation.
"In future, all the still-separate national compensation schemes across the entire European Economic Area will offer cover at €100,000 or the local currency equivalent - a limit which will protect the vast majority of depositors."
While welcoming the increased protection the new rules will afford consumers, Which? said they could be improved further if the guarantee applied to each bank brand, rather than each banking group.
"Say, for example, you had accounts with Halifax and Bank of Scotland - you should get separate payouts for each account but these proposals mean you'll just get one as they're run by the same company," said Which? chief executive, Peter Vicary-Smith.
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