The scheme provides cover in the event that a bank, building society, or insurer folds. But how does the FSCS work?
The Financial Services Compensation Scheme (FSCS) was set up to protect customers' money if banks fail.
Here, we explain how the scheme works, and how you splitting money between providers can protect more of your cash.
How does it work?
The FSCS protects deposits made with high street banks, building societies and credit unions.
If your provider collapses, you will receive compensation for deposits of up to £85,000. If you hold a joint account, you could receive compensation of up to £170,000.
You get protection for up to £85,000 for each institution you make a deposit with.
For example, you might deposit £100,000 at a single bank and it later collapses. You would only receive £85,000 in compensation from the FSCS.
You might eventually get the other £15,000 back, or you might never see it again.
Because of this, it may be wiser to hold £85,000 with one bank and £15,000 with another provider with FSCS protection.
That way, even if both went belly-up, you would receive compensation for £100,000 in total.
There may be some products which aren't protected by the FSCS. Providers will be able to tell you if the scheme covers their accounts. They should also have prominent display materials such as window stickers and website banners.
If you are at all in doubt that this protection applies to any account you open, ask the provider.
Choose your providers with care
Banks are regulated by the Financial Conduct Authority (FCA). This organisation gives banks, building societies, and other financial firms authorisation to operate.
But some banks are part of a larger banking group. Each bank might be operating under one group authorisation from the FCA.
This means that you could only get compensation for up for £85,000 across all accounts you hold within the group.
Say that you hold £50,000 with one bank within a group and £50,000 with another. If both collapsed, you’d only get £85,000 back in compensation in total from the FSCS.
If each bank within a group has its own separate FCA authorisation, you're covered for up to £85,000 with each bank. In the above example, you’d get your entire £100,000 back if both banks had their own authorisation and both failed.
If you have a lot of money stored in bank accounts, it’s important that you check this. You need to know that your money will be fully protected by the FSCS in a worst-case scenario.
Investments are also covered by the FSCS, up to a limit of £50,000.
This protection only applies when a provider fails and cannot return your money to you. Not if you've lost money through your investments.
Investing always comes with risks. So if you've lost money because your investments have lost value, you cannot make a claim. This is the case even if you have invested money in a company that collapses. If any of your shares become worthless, you will not get any compensation from the scheme.
Stocks & Shares ISAs might be eligible for compensation of up to £85,000. However, this depends on your provider and the contract between you and them. The rules get complicated here, so it’s best to ask providers what cover you would receive from the FSCS.