FSCS savings protection: how the UK deposit scheme works and who is covered

The amount of compensation available if your investment or pension firm fails has nearly doubled. Here’s everything you need to know.

What is the Financial Services Compensation Scheme (FSCS)?

The FSCS is a Government-backed scheme which protects your savings in the event of a regulated financial firm going bust.

It’s authorised by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority.

The scheme covers savings deposits, investments, pensions, insurance policies, insurance broking,  and home finance.

Compare savings accounts, ISAs and P2P investments (capital at risk)

How much of your savings is protected by the FSCS?

The amount of savings protected by the FSCS should a financial firm collapse is now £85,000.

Joint accounts will be protected up to a maximum of £170,000.

The FSCS says this will cover around 98% of people.

For investment and pension providers, you are protected for up to £85,000 if the firm fails.

The limit increased in April 2019, from a previous limit of £50,000.

FSCS and investments

Many investment firms claim that the FSCS will 'protect' your investments.

The FSCS is unlikely, however, to compensate you if the value of your investments decreases - even to the point of worthlessness.

That's because your claim will need to meet some pretty tough criteria:

• The firm (or its principals) no longer has sufficient funds to meet the compensation claim itself.

• The advice you received to buy the investment must have been given on or after 28 August 1988.

• The firm that advised you must have been authorised by the appropriate regulator to do so at that time.

• You must have lost money as a result of the advice you were given.

There are, therefore, no 'risk-free' investment products and you should be extremely sceptical of any company that purports to be so.

If you're considering investing, read our complete guide to investment to learn more about risk and whether you'd be better off with a savings account.

For pensions that are invested, the same rules apply.

However, if you've bought an annuity you'll get compensated 100% of its value should the firm fail.

Read our full guide to building up a pension here

FSCS limit: which banks are covered?

Crucially, the FSCS limit only applies per banking licence, rather than per bank.

So, for example, you are only covered for £85,000 worth of savings across both HSBC and First Direct.

You can read more about which banks are connected here.

Also bear in the mind that an increasing number of banks operating in the UK are based in Europe or beyond.

Many are still covered by the FSCS: check for the purple logo on their website.

European banks, such as app-based N26, are likely to be covered under their own country's FSCS-equivalents to the value of €100,000. It's worth checking these schemes will cover you in the UK, especially if the UK leaves the European Union.

Finally, be warned that money held in 'e-wallets' is not protected by the FSCS, even if the e-wallet is held at a major bank.

Many money management apps use e-wallets, including Revolut and auto-savings app Chip. 

Temporary high balances

You could be covered for sums above the savings limit in certain circumstances.

For example, if you recently sold a property or inherited a large sum of money, the FSCS will consider these "temporary high balances" that could be covered up to a maximum of £1 million for a few months.

Learn more about whether you're qualify for this cover on this part of the FSCS site.

Compare savings accounts, ISAs and P2P investments (capital at risk)

How to make a claim through the FSCS

If you hold savings with an authorised bank, credit union or building society that has gone bust, the FSCS will automatically compensate you for your loss.

If you want to claim on another product covered by the FSCS, you will need to complete an application form.

It will then then investigate whether your claim is valid and inform you if you will be compensated.