Ruth Emery
The Financial Services Compensation Scheme (FSCS) protects your savings and investments if a financial institution like a bank, building society, insurer or stockbroker fails.
There is a limit to how much the FSCS will pay out, and customers will be pleased to hear there are plans to raise the deposit protection limit.
The Prudential Regulation Authority (PRA) has proposed increasing the maximum compensation from £85,000 to £110,000 should a saver’s bank, building society or credit union become insolvent. If approved, the rise would come into effect by the end of 2025.
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We explain how the FSCS works, and look at the plans to increase the savings limit.
What is the FSCS?
Set up by the UK government in 2001 and funded by the financial services industry, the scheme is independent and free to use.
It is designed as a safety net to protect customers of banks, building societies, credit unions, pension providers, investment firms and insurance companies in the event of a collapse.
How does the FSCS work for savers?
If you hold money with an authorised UK-based bank, building society or credit union, you are automatically covered by the FSCS compensation scheme.
You will usually be compensated for up to £85,000 if the institution you’re using goes bust. If you hold a joint account, the protection doubles to £170,000.
In certain circumstances, where your bank balance is temporarily high (for example, due to the proceeds from a house sale or receiving an inheritance), you may be compensated for losses of up to £1 million, for six months from when you first deposited the amount.
It’s important to note that these limits apply “per financial institution”, which applies to different bank and building society brands that operate under the same licence. For example, First Direct and HSBC operate under the same bank licence, and are, therefore, protected by the same FSCS coverage limit.
So if you have, say, a cash ISA with HSBC and a regular saver with First Direct, your total compensation for funds held across both banks will be capped at £85,000.
While most people will be covered by this limit, if you have substantial cash savings, you may want to spread your money between accounts at more than one financial institution.
Bank and pension provider collapses might be relatively rare, but they do happen. Having two accounts with two providers will reduce the risks of losing access to your money for whatever reason.
The FSCS has paid £10.1 million in compensation to depositors in the past three full financial years, mainly in relation to small credit union failures.
Since it was established, the FSCS has paid more than £20 billion, primarily in connection to deposit failures during the 2008 financial crisis.
You can check the Financial Services Register to see if the company is authorised in the UK (and therefore protected by the FSCS).
How does the FSCS work for investors?
As for stockbrokers, financial advisers and investment firms, if yours goes out of business and there is a shortfall in client assets – in other words, money that should be in a segregated account turns out not to be – then the FSCS will pay out up to £85,000 per client (not per account) to top up whatever can be recovered.
Note that the FSCS protection varies depending on the type of product, and not all investment products are protected. You can use the FSCS investment protection checker to see if your product is covered.
For example, if a stockbroker owes you £70,000, but you only get back £40,000, you should be entitled to another £30,000 from the FSCS. However, if you have two accounts with the same broker holding £70,000 and £120,000 respectively, and you get back £40,000 for each, the FSCS will pay you a maximum of £85,000 leaving you £25,000 short.
You can choose to make an FSCS claim after getting some money back from the insolvent company or before it pays out anything. When you make a claim, the FSCS takes over your claim against the company.
Other countries have their own rules. In the EU, the Deposit Guarantee Scheme (DGS) guarantees bank deposits up to €100,000.
In the US, the Federal Deposit Insurance Corporation (FDIC) insures savings up to $250,000 but does not cover other financial products such as insurance or annuities. Investments in the US are protected by the Securities Investor Protection Corporation (SIPC).
Other financial products the FSCS covers
Although most commonly known for stepping in when banks and investment firms fail, the FSCS provides compensation for customers of a wide range of financial services.
This covers funeral plans and life insurance to mortgages and self-invested personal pensions (SIPPs).
Is the £85,000 limit increasing?
The PRA is proposing to raise the deposit protection limit from £85,000 to £110,000.
This covers the maximum amount of money the FSCS typically protects should a depositor’s bank, building society or credit union become insolvent.
The £85,000 threshold has been fixed since 2017, so the proposed increase takes into account inflation since the limit was last changed.
There are also plans to raise the limit applicable to certain temporary high balance claims from £1 million to £1.4 million.
The PRA has launched a consultation about these changes. If the plans go ahead, the new limit will apply to firms that fail from 1 December 2025.
Rocio Concha, Which? director of policy and advocacy, comments: "Raising the deposit protection limit is a sensible decision to support consumer confidence in the financial service industry.”
Are you eligible for FSCS compensation?
In order to claim compensation under the FSCS, you need to meet certain criteria set by the Financial Conduct Authority (FCA) and the PRA.
Here’s a brief rundown of the eligibility criteria:
- The firm needs to be a failed firm for you to receive payment for a claim against it.
- The firm needs to be authorised by either the FCA or the PRA, or any predecessor of these regulators at the time you were involved in business with it.
- You must have suffered a financial loss, and the firm must owe you a “civil liability” such as a breach of certain rules or negligence so that if you take the firm to court, the ruling would be in your favour.
- Each product has slightly different criteria.
Check if your financial product or service is protected, and what the compensation limits are.
How to claim for FSCS compensation
If you think you have a compensation claim against a failed financial services company under the FSCS, the first step is to check your eligibility using the FSCS’s online tool. It’s free and relatively simple.
After this, you need to gather all the necessary documents. You can find out which documents are required for each kind of claim, such as investment, mortgage advice or endowment, pensions, PPI, structured deposit or whole-of-life insurance claims, on the FSCS website.
For most claims, you require two forms of identification, documents related to the product or service you’re claiming for, and your bank details, so that the compensation can be paid into your account if approved.
If you’re claiming under the temporary high balances rule, you will need to provide evidence of any of the following that apply to your case:
- A property sale receipt or agreement
- A court judgment
- A will
- A letter from an insurer regarding an insurance payout
- A letter from a lawyer, conveyancer, mortgage provider, former employer, or pension trustees
- Court orders
- Probate/letters of administration
- Death/marriage certificate
- Land Registry and HMRC records
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