What is the FSCS and how does it protect your money?
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The Financial Services Compensation Scheme (FSCS) is often uttered in the same breath as protection for money saved in banks and building societies but it actually does a lot more than that.
The FSCS provides protection for mortgages, pensions, insurance and a range of other financial products.
Each category has a different level of protection and different rules around what is and isn’t covered, and not all of these are as well publicised as the protection for savings and investments.
With that in mind, here’s a look at how the FSCS works and how it protects your money.
What is the FSCS?
The Financial Services Compensation Scheme (FSCS) was created in 2001 under the Financial Services and Markets Act 2000, and it exists for two reasons.
The first is of course that it provides financial protection for consumers.
Acting as backup insurance, the FSCS steps in when a firm it protects fails or is otherwise unable to pay out.
It can also step in when a firm simply looks like it’s unable to payout.
Thanks to this extra level of protection, the FSCS bolsters confidence in the UK financial market and therefore maintains its stability.
How is the FSCS funded?
Although the FSCS was created by the government, it operates completely independently in terms of both policy and funding.
The money for running the scheme comes from the very financial institutions that it offers protection for so no taxpayer money is involved.
As consumers, you’re “insured” the moment you take out a product from the protected firm and you don’t need to pay anything extra.
What does the FSCS cover?
The FSCS provides financial protection across eight broad categories:
- Money deposited with banks, building societies or credit unions
- Payments made to a debt management firm
- Funeral plans
- Insurance policies
- Investments
- Mortgage advice and endowments
- Payment protection insurance (PPI)
- Pensions
It’s important to note that the FSCS doesn’t protect all financial firms.
Instead, it will only offer financial protection for firms that are authorised by either the Financial Conduct Authority (FCA) or the Prudential Regulation Authority (PRA), or a predecessor of one of these regulators, such as the Financial Services Authority (FSA).
And in some cases, only certain types of products are protected.
For example, money held in electronic money institutions is not protected by the FSCS, even though they must be registered or authorised by the FCA.
For products provided by brokers, or authorised mutual or friendly societies, the level of protection offered will depend on the product you hold.
How much money is protected by the FSCS?
As I mentioned, the level of protection you get with the FSCS depends on the type of firm and the type of product you hold, so it’s important to check the details if you have significant assets.
For most people, the level of protection that the FSCS currently offers is more than enough.
Money held by banks, building societies and credit unions
The FSCS will pay up to £120,000 per eligible person, per bank, building society or credit union that fails after 30 November 2025.
This protection limit was previously £85,000, but was increased to the new amount on 1 December 2025.
It’s worth noting that the protection limit is set per banking licence.
So if you bank with two or more firms sharing the same banking licence, you’ll only get back a maximum of £120,000 regardless of how much money you have saved between them.
The Bank of England has compiled a list of the brands that share a banking licence but you can also look up individual firms on the FCA Financial Services Register.
Joint accounts exception
Joint accounts are protected separately for up to £120,000 per eligible person, per bank, building society or credit union that fails.
So if you have substantial savings, having a joint account will significantly increase the amount of money you have under protection.
Temporary high balance exception
The FSCS also allows exceptions for temporary high balances of up to £1.4 million, and it will protect this sum for a period of six months.
To qualify, the money has to have been deposited into your account as a result of certain life events, such as the sale of a main home, inheritance or redundancy.
You can find a full list of eligible life events on the FSCS website.
Money paid to a debt management firm
If you have a debt management plan in place, you’ll be making regular payments to a debt management firm, which will in turn distribute the funds across your debts.
The FSCS provides protection for debt management plans provided by firms that are authorised by the FCA.
The firm must also hold your money as part of the running of its business.
For debt management firms that fail after 1 April 2019, the FSCS will pay out up to £85,000 per eligible person, per firm.
Different rules apply for firms that failed before this date.
Funeral plans
A funeral plan allows you to arrange and pay for your funeral in advance.
You may have paid off your funeral plan with a one-off lump sum, or you may still be making regular payments when the provider fails.
For funeral plan providers that fail after 29 July 2022, the FSCS will pay out up to £85,000 per eligible person, per firm.
Insurance policies
The FSCS offers different levels of protection for different insurance policies, and for certain types of policies it will offer no protection at all.
You can check what insurance products are protected (or not) on the FSCS website.
For protected insurance firms that fail after 8 October 2020, the FSCS will cover 100% of any eligible claims against compulsory, long-term or professional indemnity insurance policies.
The 100% cover also applies to claims arising from the death or incapacity of the policyholder due to injury, sickness or infirmity and building guarantee policies.
For any other type of protected insurance policy, the FSCS will cover 90% of any eligible claims.
Different rules apply for firms that failed before this date.
Investments
Uninvested money held by an investment platform should be protected by the FSCS in the event that it fails.
However, it can depend on what kind of investment product you hold, so you should use the FSCS checker if you’re not sure.
If you’re protected and the investment firm fails after 1 April 2019, the FSCS will pay out up to £85,000 per eligible person, per firm.
Different rules apply for firms that failed before this date.
Your actual investments are held separately so they should be safe from the failure of the investment platform.
The FSCS doesn’t protect against the poor performance of your investments so you can’t make claims for market fluctuations.
Separately, if you’ve received bad investment advice from a regulated firm that caused you to lose money, you may be eligible for compensation from the FSCS.
Mortgages
The FSCS can offer compensation if you’ve received bad mortgage advice and lost money as a result of it.
It can also help if you were mis-sold a mortgage endowment policy.
If the firm you want to make a claim against fails after 1 April 2019, the FSCS will pay out up to £85,000 per eligible person, per firm.
Different rules apply for firms that failed before this date.
Payment protection insurance (PPI)
PPI is an insurance product that’s generally sold with a loan, credit card or mortgage product.
It’s designed to cover repayments for a set period if you’re unable to pay them because of illness, accident, or unemployment.
If you bought a PPI policy after 14 January 2005, and have subsequently found that the information you were given was misleading or insufficient, you may be able to claim compensation from the FSCS if that firm has since failed.
The FSCS will cover 90% of the claim if the firm fails after 1 January 2010.
Different rules apply for firms that failed before this date.
Note that the claim is against the firm that advised you to take out the policy, not the firm you had the policy with.
Pensions
When it comes to pensions, the FSCS will cover 100% of claims for insurance-based pension providers that fail after 1 April 2019.
But if you have a SIPP, the FSCS will only pay out £85,000 per eligible person, per firm.
Separately, if you’ve received bad pension advice, you might be able to claim compensation of up to £85,000 per eligible person, per firm if the UK-regulated firm that gave you the advice has gone bust.
If that firm is still trading, you could complain to the Financial Ombudsman Service first.
How to check whether you’re protected by the FSCS
The FSCS only covers certain products and certain firms so it’s always worth double checking whether you’re protected.
For banks, building societies or credit unions, the FSCS now makes it super easy to check via the dedicated search function on its website.
You just need to enter the company’s name or Firm Reference Number (FRN), which can be found on the FCA Financial Services Register, plus the amount and account type.
There are separate checkers for pensions and investments.
Debt management firms must be authorised by the FCA to be eligible for FSCS protection so the Financial Services Register is your starting point.
Similarly, funeral plan providers must be regulated by the FCA and so will be on the Financial Services Register.
For insurance products, FSCS protection only applies to providers regulated by the PRA – a full list is available on its website.
How to make an FSCS claim
If your bank, building society or credit union has failed, you don’t need to do anything – the FSCS will return your money automatically.
This is usually done within seven days via electronic payment or cheque.
If your insurance company has failed, the FSCS will try to arrange alternative cover for you so you’re not left without cover.
But if that’s not possible then it will return any remaining premium owed to you.
Mortgage, pension, PPI, investment and debt management plan claims can be submitted online on the FSCS website.
You should gather any statements and correspondence from the firm so you can complete the claims form, which will ask for details such as when you took out the product.
Depending on the type of claim, it can take several weeks to several months to complete but once approved, the money should be with you in a matter of days.
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