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FSCS Protection

What is the FSCS?

Editorial Team

The Financial Services Compensation Scheme (FSCS) protects your money if authorised financial service firms (banks, building societies, or credit unions) holding it go bust, cease to trade, or have other financial difficulties.

The FSCS was created in 2001 and describes itself as "the compensation fund of last resort for customers of authorised financial service firms". Between 2006 and 2011 the financial crisis resulted in compensation of over 26 billion pounds being paid out by the FSCS.

Read on to learn all about what the FSCS protects, how it works and how to make a claim if you are eligible for compensation.

How does the FSCS work?

The FSCS is funded by the financial services industry, which means that it is an independent body from the government and is not funded through tax. The Financial Conduct Authority and the Prudential Regulation Authority (PRA) are required to also contribute to the fund.

If you have a business bank account with a bank that is covered by the FSCS and that bank ceases to trade, the FSCS ensures that you get your money back.

However, the FSCS only protects savings up to the compensation limit of £85,000 per person, per financial service firm.

Aside from the cap of £85,000, it is important to be aware that some financial service firms have several brands and you won't recieve compensation for each account if they fall under the same firm or group.

For example, Halifax and Bank of Scotland are of the same banking group. If you had £80,000 with Halifax and £30,000 with Bank of Scotland and they both went bust, you would only be able to claim £85,000 in total. But if you split your money into two completely separate banks, you would be compensated for the full amount.

You can find a full list of registered banks and what brands fall under the same umbrella on the Financial Conduct Authority’s (FCA) website.

Alternatively you could also consider opening a joint account, as each account holder is protected by the FSCS.

Am I eligible to claim compensation?

The FCA and PRA state that these are the FSCS’s eligibility criteria to claim compensation:

  • The financial firm that has your money must have failed and be unable to return it to you
  • This financial firm must have been authorised by the FCA or PRA at the time you deposited your money
  • The financial firm must have been negligent in relation to any activity covered by the FSCS
  • You must have suffered financial loss and be a private individual, business, or charity

How do I make a claim?

You can use the FSCS website to make a claim. Once you have completed the online form, your claim will be investigated and the FSCS may contact you and the third party, i.e., the financial institution (a UK bank, building society, or credit union).

The FSCS aims to pay compensation within seven days of the financial institution failing, but the time can vary depending on what kind of financial product you're claiming compensation for, with more complex cases taking up to six months to be processed. You are also able to challenge the outcome of your claim if you are unhappy with the FSCS’s decision.

Please also be aware that you do not need to pay in order to make a claim from FSCS. You will also not get your compensation any quicker if you go through a claims management company (CMC) but will increase your costs.