The Financial Services Authority said the Financial Services Compensation Scheme (FSCS) would also pay out up to £100,000 to couples with a joint account who lost money when a bank failed.

The new limit, which will come into force next Tuesday, ties in with the introduction of the Government's Banking Bill in Parliament next week.

The Government has been coming under increasing pressure to raise the limit this week after the Irish Government announced on Monday that it would guarantee all savings deposits held with an Irish institution for two years.

The move is believed to have sparked a flood of British money into Irish banks.

Website moneysupermarket.com said it had seen a three-fold increase in the number of people opening accounts with Ireland-based institutions during the first three days of this week, compared with the same period of last week.

There has also been a rush among savers to put their money with institutions that have a Government guarantee or that are perceived to be strong.

Nationalised group Northern Rock withdrew some of its savings products yesterday after seeing "sizeable" inflows of cash in an attempt not to fall foul of its competitive commitments relating to its state ownership.

There have also been reports of savers flocking to banks such as Lloyds TSB and Abbey, which is owned by Spanish giant Santander, as well as to the Treasury-backed National Savings and Investments.

Prime Minister Gordon Brown announced plans to increase the limit of the FSCS earlier this week.

The FSA had been running a consultation on the issue of increasing the limit, but its introduction was not expected so soon.

Hector Sants, chief executive of the FSA, said: "There has been extensive debate about the compensation levels.

"In the interests of providing clarity over the minimum level for the long term, we have now decided to implement the move to a £50,000 limit from Tuesday.

"This change ties in with the introduction of the Government's Banking Bill in Parliament which is due next week, and is also appropriate given the consolidation that has taken place in the banking sector.

"In addition, the Chancellor has made clear that the authorities will do whatever is necessary to maintain financial stability and protect depositors."

The FSA will continue to consult on further reforms to the scheme, including looking at whether the compensation limit should be higher still and the speed at which it pays out compensation.

It will also consider whether the new £50,000 compensation limit should apply to each legal banking entity, each banking brand or even each individual account.