If your bank, building society or credit union went bust you would be entitled to compensation through the Financial Services Compensation Scheme for a maximum of £85,000. Find out what happens for joint accounts and if you have money with two banks in the same banking group.

• What is the Financial Services Compensation Scheme (FSCS)?
• What the Financial Services Compensation Scheme covers
• What the Scheme doesn’t cover
• How much compensation will you get?
• Beware of firms offering claims management services

What is the Financial Services Compensation Scheme (FSCS)?

The Financial Services Compensation Scheme (FSCS) can pay out compensation to people who end up out of pocket because a bank or other financial services provider goes bust.

It also helps people who lose money because of poor advice from a financial adviser who has since gone out of business.

What the Financial Services Compensation Scheme covers

The scheme covers several different kinds of financial services.

You could get compensation if:

• You lost money in deposit accounts with a bank, building society or credit union if the firm fails. As long as you didn’t have more than £85,000 with a single institution. Use Which?’s tool to find out which banks are part of the same group.
• Your insurance company goes bust. The Financial Services Compensation Scheme can pay protected claims and try to arrange for, or help with, the transfer of the insurance business to another company if this is cost effective and practical.
• Your pension provider goes bust. The scheme only covers pensions regulated by the Financial Conduct Authority – you can see an overview of which schemes are and aren’t covered on The Pensions Advisory Service website.
• You lost money because you got poor financial advice, or your financial services provider committed fraud. In this case, the scheme might cover you if the financial services provider is unable, or likely to be unable, to pay claims against it.

Protection of temporarily high balances

It’s worth noting that depositors with temporary high balances might have protection under the FSCS for up to £1m, for up to six months from the date the account was first credited.

Cover for temporary high balances is only available to individuals and not to companies.

If, for example, you sell your home and as a result have an unusually high balance in your account, your balance might be temporarily protected if your bank goes bust, even if it is higher than the £85,000 limit.

What the Scheme doesn’t cover

You are not covered by the Financial Services Compensation Scheme if:

• The company is still in business. You must complain to them first, and then take your case to the Financial Ombudsman, if you are not satisfied. The scheme does cover future claims against firms still in business.
• The firm wasn’t responsible for your loss. For example, if your loss was caused by an underlying investment going bust.
• The company was not authorised by the Financial Conduct Authority (FCA) or the Prudential Regulation Authority. You can find out if yours is covered using the Financial Services Register.
• The company was based in the European Economic Area (EEA). All deposit-takers with headquarters in the EEA must sign up to their home country’s deposit compensation scheme. All European countries are required to have a compensation limit equivalent to €100,000.
• Your claim relates to business that took place before a certain date. This date varies depending on the type of claim – you can check key dates on the Scheme’s website.

If you think you’ve been sold a product that wasn’t suitable for you and the firm has gone bust – mis-selling – you might be able to claim compensation.

How to make a claim

When a bank or building society goes out of business the Financial Services Compensation Scheme, will automatically pay out depositors with eligible deposits up to £85,000.

Customers of other types of financial services may have to contact the FSCS directly.

How much compensation will you get?

There are limits on what the scheme will pay out.

You need to be particularly careful how much money you keep with each:

• Bank,
• Credit union, or
• Building society

If you have savings above the compensation threshold, how you spread your money between different banking groups.

If you have only one account

Cash you put into UK banks or building societies (that are authorised by the Prudential Regulation Authority) is protected by the Financial Services Compensation Scheme (FSCS).

The FSCS deposit protection limit is £85,000 per authorised firm.

If you have more than one account with the same bank or building society

The maximum you would get is still £85,000, even if the total of all your different accounts with the same bank added up to more than this.

If you have more than one account, but with different banks and building societies

The level of protection you have will depend on which banks and building societies your accounts are with.

The Financial Services Compensation Scheme will only pay out its maximum of £85,000 per person, for each ‘authorised institution’ or banking group.

Some bank brands are actually owned by a larger bank company. For example, First Direct is owned by HSBC. So, if you had £80,000 with First Direct and £10,000 with HSBC, you would have a total of £90,000 with HSBC Bank Plc. That means £5,000 would not be covered by the FSCS.

If you have a joint account

If you have a joint account, the Financial Services Compensation Scheme deposit protection limit is £170,000.

Beware of firms offering claims management services

It is completely free to make a claim with the Financial Services Compensation Scheme.

But, some companies will offer to help you make a claim and charge you a fee.

This can be as much as a quarter of your compensation plus VAT – so if you got £2,000 back you could end up paying the company as much as £600.

This article is provided by the Money Advice Service.