Financial Services Compensation Scheme
The Financial Services Compensation Scheme (FSCS) is a compensation fund which is separate from both the government and the financial services industry. It is designed to protect deposits in the event of an FCA-registered bank or financial institution going out of business.
The FSCS provides different levels of protection according to the type of product in question.
FSCS Deposit protection
Deposits protected by the FSCS can include money held in current and savings accounts, Cash ISAs and structured deposits provided the institution is FCA registered.
The FSCS protects against deposit losses up to the value of £75,000 per person, per institution.
If you have a joint account each individual account holder is still covered for £75,000 (per institution). So, for example, money in a joint account held by two people could be protected up to £150,000 (£75,000 of cover each).
From 1 January 2016, people with temporary high balances are covered for up to £1million for six months. Proceeds from a house sale, for example, will be covered in this way.
What is an institution?
The £75,000 worth of compensation protection is only applicable per person per institution. Under the terms of the FSCS an “institution” is not necessarily an individual bank or a building society, but rather the institution that owns those banks and building societies.
So, for example:
- HSBC and First Direct are both owned by HSBC Bank plc (the institution)
- If you hold £50,000 in a HSBC savings account and £50,000 in a First Direct current account, you have £100,000 in total with one institution
- If both banks were to go out of business, only £75,000 of your £100,000 would be covered by the FSCS because both banks are owned by the same institution.
Spreading your money between banks owned by different institutions can help you to achieve a maximum level of protection. If you’re not sure who owns your bank, you can ask them, or you can find out by visiting the Bank of England website.
Just because a banking institution operates within the UK, it doesn’t mean that it is protected by the FSCS. Some banks and building societies that operate within the UK are owned by foreign banking institutions, which means that they may not be covered by the FSCS. Although some institutions within the EU are covered by similar compensation schemes, you should check with your provider to be certain.
Other cover offered by the FSCS
As well as cover for deposits, the FSCS can also compensate you for losses caused by certain other types of financial service firms:
- Investment firms
You’re the victim of an investment business offering misleading advice, fraud, negligent management or misrepresentation that results in financial losses. You could be eligible for compensation of up to £50,000. You could also be entitled to compensation if the investment firm goes bust. You may be eligible for compensation provided the business was conducted after 28 August 1988.
- Mortgage firms
Your mortgage adviser or arranger goes out of business when they still owe you money, or you were advised to enter into a mortgage agreement that was unsuitable and you lost money as a result. You may be eligible for compensation for losses of up to £50,000, provided the business was conducted after 31 October 2004. If the firm is still trading you should complain directly to them, or raise a claim with the Financial Ombudsman Service.
- Insurance firms
You’re the victim of insurance fraud, have been mis-sold insurance or your insurance firm goes bust and you lose money as a result. You may be eligible for compensation for up to 90% of the claim with no upper limit.
Limits of the FSCS
The FSCS will not pay out compensation if:
- The firm in question is still in business or is still trading
- The firm may be able to meet your claim itself
- The firm isn't responsible for your loss (e.g. if an investment does not perform satisfactorily)
- Your claim falls outside of the specified start dates.
There may also be other cases where the FSCS won’t pay out. Full details, including how to make a claim, are available on the FSCS website.
Last updated: 25 January 2016