This article prepared by Moneyfacts Compare explores the nuances of the Financial Services Compensation Scheme, so that you can ensure your money is protected in the event your bank collapses. While many of us are aware that the FSCS scheme offers protection, many will not realise the scope of its coverage.
What is the FSCS?
The FSCS is a Government-backed body which is designed to protect consumers in the event that a bank or financial services firm goes bust. Compensatory payouts are typically up to a limit of £85,000.
Who Funds the FSCS?
The scheme is paid for by levies from the financial services providers themselves. The FSCS forecasts how much it expects to have to pay out and uses this to work out what the levy is.
During 2023/2024, the FSCS paid out over £423 million in compensation to more than 19,000 customers affected by the failure of their financial institutions.
Why Does the FSCS Exist?
The FSCS exists to provide consumers with confidence in UK banks, that UK banks are a safe place to keep their money. With a safety net, it encourages saving, prevents panic, reduces instability and helps secure pensions.
Are all UK Banks Covered by the FSCS?
The FSCS applies to all financial firms with UK branches that are authorised by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA). This includes banks in addition to building societies, and credit unions.
What isn’t Covered by the FSCS?
Here is a list of products and situations where protection may not be provided:
- Insurance policies such as warranties and protection plans, certain life and health insurance policies and unregulated investments such as mini-bonds and collective property investment schemes.
- Risky investments such as cryptocurrency or unregulated financial services as well as peer-to-peer lending platforms.
- Banks that operate outside the UK without a UK branch.
- Loans from firms not regulated by the FCA such as alternative lenders or payday loan companies.
- Deposits in e-money firms are not protected under the FSCS, as these institutions safeguard funds separately. Examples of e-money firms are companies like PayPal or Monzo (although their full bank accounts will be protected, their e-money accounts won’t be).
How Can I Check if My Money is Protected by the FSCS?
Most banks display an FSCS protection logo on their website. You may also find it in the “About Us” section or in their terms and conditions. You can also check with the FSCS and the Financial Services Register directly to see if your bank is covered. Websites like Moneyfacts Compare have an up-to-date A to Z directory of banking licences in their Who Owns Whom guide.
The Importance of Understanding Banking Licence
The FSCS protection you receive depends on the banking licence held by your financial institution. In the UK, some large bank brands may share the same banking licence. If you have £100,000 across two different banks sharing the same licence, only £85,000 would be covered if the bank were to fail.
How Do I Know if My Banks Share the Same Licence?
If you’ve got money in different banks you could look on each website to see whether it shares a licence with another bank in the same group. However, many banks’ websites do not present the information in language that’s simple to an outsider.
For example, NatWest displays its information in its Website Terms and FSCS page:
National Westminster Bank Plc. Registered in England and Wales (Registered Number 929027), Registered Office: 250 Bishopsgate, London EC2M 4AA. Authorised by PRA and regulated by the FCA and the PRA. NatWest is entered on Financial Services Register and it’s Register number is 121878.
To the average non-banking person, it is not immediately clear that NatWest has a banking licence under its own right. If you’re unsure, you could contact the bank directly, but a quick search directly online may be quicker.
For example, if you are looking for other banks which share a licence with NatWest you might start by searching
“Is NatWest part of a banking group?”
Next, learning that NatWest belongs to NatWest Group can lead to the last question:
“Do all NatWest Group brands share the same licence?”
The answer is no – they don’t. Some brands within the group have their own banking licences.
What Should I Do if I Have More Than £85,000 in Banks That Share a Licence?
If you have more than £85,000 in a bank sharing a licence with another bank, you may want to consider spreading your savings across multiple institutions to ensure full FSCS protection and reduce your financial risk.
What Are the Chances of a British Bank Failing Soon?
The chances of a British bank failing now are thankfully low. Financial bodies like the FCA and the PRA monitor their activity closely to ensure they don’t take too many risks when lending or investing money.
When Was the Last Time a British Bank Failed?
The last bank to fail was over 17 years ago when the Bradford and Bingley collapsed. It had given out lots of mortgages to people who might not have been able to get one elsewhere and, when property prices fell, it couldn’t cover its losses.
How to Recognise Warning Signs of a Bank in Trouble?
British banks don’t fail often, thanks to strict rules and oversight from the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA). But every now and then, it does happen.
Here are some of the warning signs to look out for:
- Website issues or problems logging into your accounts.
- Withdrawal issues or cash shortages at ATMs.
- A significant dip in the bank’s share value.
- A decline in credit rating for the bank.
- Poor service or slower response times.
- Press reports of financial instability.
- Reluctance to approve loans or reports of rising bad debt levels. This was particularly the case during the pandemic when financial stability across the banking system was at an all-time low.
Frequently Asked Questions
Does the FSCS cover foreign banks in the UK?
If you have an account with a foreign bank that has a UK branch and is regulated by UK authorities, your funds are covered by the FSCS. However, if the bank doesn’t have a UK branch or is not regulated, you won’t be protected.
Are online banks covered by the FSCS?
Yes, both online and traditional banks are covered under the FSCS, if they are registered with the UK’s financial regulators.
What happens if my bank fails – how can I claim FSCS compensation?
Should your bank or financial institution fail, the FSCS will automatically step in and return your eligible deposits up to the compensation limit of £85,000. No action is needed on your part to claim compensation. For further details, visit the FSCS official website. https://www.fscs.org.uk/making-a-claim/
Are pensions protected by the FSCS?
Yes, pensions are protected by the FSCS, but only if they are held with an FSCS-regulated company. To be certain, you should check with the pension provider.
