Financial Services Compensation Scheme: Your Questions Answered

The Financial Services Compensation Scheme (FSCS) was set up in 2001 to protect consumers’ savings in the event their bank or building society went bust. It can also protect mortgages, investments and insurance products.

Here we explain all you need to know.

What is the FSCS?

The Financial Services Compensation Scheme was introduced under the Financial Services and Markets Act 2000 to protect the customers of financial services firms that go out of business. This means that if your bank, building society or credit union goes bust, the FSCS will step in to pay compensation.

All UK-regulated current accounts and savings accounts are protected through the FSCS, and it covers up to £85,000 of savings per individual, per financial institution (not per account held with any particular institution).

The £85,000 limit is in line with the €100,000 compensation offered to those who have savings in European banks. It remains to be seen whether this will change once the Brexit transition period comes to an end on 31 December 2020 – see below.

What if I have more than one account with the same bank or building society?

If you have several accounts with the same bank, the FSCS will still only provide cover up to a maximum of £85,000 for that institution, even if you have more than this in total across your different accounts.

What if I have more than one account with different providers?

This is where it gets a little more complicated as the level of protection you’ll have will depend on which banks and building societies you hold accounts with. This is because the £85,000 applies per authorised institution or banking group.

Some bank brands operate under the same banking licence, so if you have accounts with different bank brands that have a single registration with the Financial Conduct Authority (FCA), you will still only be protected for up to £85,000 in total for those accounts.

For example, let’s say you had £85,000 in a savings account with HSBC and £85,000 in an account with First Direct. You might think that because these are different banks, you’ll be covered for £170,000.

However, because HSBC and First Direct operate under one banking licence, you’d only receive compensation of up to £85,000.

Similarly, Halifax, Bank of Scotland, Birmingham Midshires, and Intelligent Finance all have the same banking licence.

Lloyds Banking Group is even more confusing as it has two banking licences, so while Halifax is part of Lloyds Banking Group, any savings you had in a Halifax account would be separate to those in a Lloyds Bank account, and both would be protected.

Consumer group Which? has a handy tool to help you work out who owns who in the banking world.

How can I check a bank’s registration?

The easiest way to check a bank’s registration is to use the FCA website, which keeps a record of banks, building societies and other financial institutions in the UK.

This can be particularly useful if you have an account with an overseas bank which has a UK subsidiary. If the bank is not protected by the FSCS, your savings should still be covered by a compensation scheme in the country where the bank originates from, but it’s always best to check.

What about joint accounts?

If you have a joint account, you’ll have double the protection, so £170,000. However, remember that technically only half (£85,000) is your allowance, while the other £85,000 would be your partner’s.

Note, too, that this still applies to the one institution, so this means:

·       if you had a joint account with your partner with Bank A that held £170,000 (or £85,000 each), plus individual accounts of £20,000 with the same bank, you’d still only get £85,000 each if Bank A went bust.

·       if, on the other hand, you had £170,000 in a joint account with Bank A, but also £20,000 each in individual accounts with Bank B, you’d be covered for the £85,000 each for Bank A, plus an extra £20,000 each for Bank B (providing Bank A and Bank B have difference licences).

What if I have savings with NS&I?

Because National Savings & Investments (NS&I) is backed by the government, your savings will be protected in full. So if you have £100,000 saved in an NS&I account, for example, this will still be covered even though it’s over the £85,000 FSCS limit.

See story: Premium Bond Wins Slashed From December

Does the FSCS protect business accounts?

Yes – if you have a business current account or savings account, you’ll still be protected up to £85,000, but if you have personal money with the same institution, it’s a bit more complicated.

If you run a limited company or an LLP, then it is a separate legal entity, and you could claim for the business up to £85,000 and additionally for your personal account(s) up to £85,000.

But if you’re a sole trader you wouldn’t be entitled to two separate claims – you could just claim up to £85,000 in total. 

If you have a joint business account where you hold the account as partners in a business, the business partnership is only entitled to a single claim of £85,000.

Are there ever any higher compensation limits?

Rules introduced in July 2015 mean that those with temporary high balances may have FSCS protection of up to £1 million for up to six months from the date the account was first credited.

This only applies to individuals, not companies, and can be useful if, for example, you have sold your home and have a significantly higher balance than usual.

Does the FSCS protect mortgages, insurance and investments?

The FSCS protects mortgage advice, so if your regulated adviser fails and you lose money because the adviser recommended a mortgage that wasn’t right for you, you could claim compensation of up to £85,000 per eligible person, per firm.

You may also be able to claim FSCS compensation for investments, but only if you lose money because the investment provider has gone bust – for example, the bank that holds your stocks and shares ISA. If you’re eligible, you may get compensation of up to £85,000 per person, per firm.

Be aware that investments will not be protected if you lose money because your investment has not performed well.

You may also be able to claim a certain amount of compensation if your pension provider or insurance provider fails, but the exact amounts can vary. To find out more, take a look at the FSCS website.

Note that stamps, art, wine, overseas property and other alternative investments are not regulated by the FCA so will not be covered under the FSCS.

Will Brexit affect the FSCS?

The FSCS limit sits in line with that of the European compensation scheme which is set by an EU directive. As a result, you may be wondering whether FSCS protection will change now that the UK has left the EU.

At the moment, the UK is in a transition phase which lasts until 31 December 2020, so there have been no changes to the scheme. Whether this will change once the transition period is over has yet to be confirmed, but it’s unlikely consumers dealing with UK authorised firms in the UK will see any changes to the level of protection under the FSCS.

How do I claim through the FSCS?

If you need to make a claim through the FSCS, there are a number of steps to take:

1.     Get supporting documents ready

The FSCS says it needs ‘quite a bit of information to investigate your claim’, so before proceeding it’s best to hunt out the below documents and have them to hand:

·       two forms of identification

·       products and advice documents for the product you are claiming for

·       your bank account details so that your compensation can be paid if your claim is approved.

Scans are accepted for most documents. If you need to contact your provider to request any of this information, the FSCS has a number of letter templates you can use to help (click on the ‘If you need to contact your provider’ link).

2.     Check if you can claim

You will need to enter some basic details about your claim and the FSCS will inform you immediately whether you are eligible to claim.

3.     Create your online account

You’ll need to enter a few personal details to create your online account so that you can submit your claim and check on its progress.

4.     Complete your application

Once your account has been created, you’ll be asked to answer some questions about why you are claiming and upload any supporting documentation. You’ll then need to sign your claim electronically before you submit it.

It usually takes one to two hours to complete your application online, but if you’d prefer not to do this in one sitting, you can save your progress and come back to it later. Once you have completed your application, you should be sent an email to confirm your claim has been received.

How long does it take to get my money back?

In most cases, the FSCS aims to pay compensation within seven days of a bank, building society or credit union failing. Any remaining deposit claims, which are likely to be more complex, should be paid within 15 working days.

For general insurance claims, the FSCS aims to pay out within 14 working days of agreement of the claim, and for payment protection insurance (PPI), you can expect to receive your compensation within three months. For other financial services products, the FSCS says it aims to resolve claims within six months.