The Financial Services Compensation Scheme (FSCS) is an independent body that was founded in the UK in 2001 by the Financial Services Authority (FSA). It covers all companies regulated by the FSA, and is funded by charging levies to companies authorised by the FSA.

Under the FSCS, customers’ deposit account savings are now guaranteed up to a maximum of £85,000 per customer per institution* – or £170,000 for a joint account. If a customer has more than £85,000 and that bank collapses, the scheme will pay only the maximum £85,000 per person per institution* – but they could still receive additional funds as part of the insolvency process. Interest owed to customers up to the date that the bank is found to be “in default” would also be treated as part of the compensation.

The FSCS does not always cover 100% of a customer’s deposit account. If you owed money to the failed firm, for example, (such as mortgages or loans), this would be taken into account when compensation is calculated. Having said that, the FSCS has never actually had to pay out for the failure of a major UK bank. As demonstrated recently, it is likely that the UK government would do everything it possibly could to avoid the collapse of a British retail bank before this became an issue.

* Please note: ‘institution’ refers to the complete entities which have resulted from merger and acquisition activity in the banking industry. Check the relationships between even differently named banks with whom you have deposits to see what limits apply.

NOVEMBER 2012