The Financial Services Compensation Scheme (FSCS) is in place to protect consumers and businesses in the event that a financial institution ceases trading and is unable to meet its financial obligations.
Whilst the FSCS was primarily set up to assist private individuals, small to large businesses, including charities and small local authorities (such as parish councils), are also covered up to the deposit limit of £85,000.
What is the Financial Services Compensation Scheme?
The FSCS exists to protect consumers and businesses and is effectively a ‘last resort’ fund for deposits, if the bank or building society that the funds are placed with goes bust. It is funded by the financial services industry as a whole in the form of a levy, paid by each UK authorised financial services firm.
Any firm that is authorised by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) is covered by the FSCS.
The scheme was set up under the Financial Services and Markets Act 2000 and became active on 1 December 2001. Since 2001, millions of people have been helped by the scheme and the amount paid out runs into billions of pounds.
Crucially, the FSCS is free to consumers and is independent of the Government and the financial services industry, including those firms that participate in the scheme.
Protection for businesses
The FSCS protects a number of different types of financial products and services – however, what we are looking at in more detail here, are deposits.
There is a limit as to how much of your business’s deposits are protected by the FSCS and this currently stands at £85,000 per business, per banking licence.
But, as a word of caution, this doesn't mean you'll get £85,000 protection for every account held, rather it is the amount held by the business in total with the bank or building society.
Interestingly, the protection limit is actually at its highest level since the introduction of the FSCS and there have been a number of changes to the limit over the years.
Before 2007, the maximum FSCS pay-out for depositors was just £31,700 per person, made up of 100% of the first £2,000 and then 90% of their next £33,000.
Since then, recognising that this was not enough to reassure savers, in October 2007 the limit was raised to £35,000 and a year later, raised again to £50,000. It was first increased to the current limit of £85,000 on 31 December 2010.
Then following a period from 1 January 2016, where it was lowered to £75,000, it increased again to its current level of 100% of the first £85,000 from 30 January 2017.
Protecting your business's reserves
First of all, if your business has less than £85,000 with any one banking licence, you can be confident that your deposits will be protected by the FSCS should the worse happen and your chosen provider ceases trading.
If you have more than £85,000, the key is to make sure you know which providers come under the same banking licence, so you are not inadvertently going over the limit.
To find out if your provider has its own or a shared banking licence, you can refer to our handy guide, which contains a comprehensive list covering the whole of the UK savings market.
If you have more than £85,000 with any one banking licence, you are currently exposed to the risk that your chosen provider goes bust and not all of your business’s funds are covered by the FSCS.
So, if this applies to your business, our savings experts can advise you on how to spread your business savings across several different providers, to ensure your funds are fully protected. Call us on 0800 321 3581 to find out more.
How Savings Champion can help
In addition to this information and our handy FSCS tool, Savings Champion can help you pick through the minefield of shared banking licences. Call us on 0800 011 9705 to check your chosen provider or to find an alternative home for your business’s reserves.
For those with larger sums to invest, we also offer our Cash Advice Service, which not only maximises the amount of interest your business can get, but also ensures that your reserves are protected by the FSCS or European equivalent, to the level you require.
Our Cash Advice Service also takes the hassle out of opening multiple savings accounts to keep within the FSCS limits, saving your business valuable time and resources, as well as money.
So, call us today on 0800 011 9705 to speak to one of our savings advisers and see how we can help your business.
In most cases, the FSCS aims to pay compensation within seven days of a bank or building society going out of business. More complex deposit claims could take longer but should take no more than 20 working days.
It is important to note that there is no charge or fee for the service provided by the FSCS – it is a non-profit, independent organisation.
Once you are made aware that there is a problem with your chosen provider, you should get in touch with the FSCS as soon as possible. Whilst there are no set time limits for claiming compensation – it makes sense to take action as soon as possible.
It is also worth noting that if a bank or building society is declared in default by the FSCS, you will be paid any interest owed as part of the compensation amount – so you should factor the potential interest you will receive when deciding how much to deposit with a provider.
FSCS protection is important for all savers, including businesses, giving the peace of mind that if a bank or building society was to fail, you don’t lose your vital business reserves. However, there is a limit to the protection and it can be tricky to navigate the minefield of shared banking licences.
This is where Savings Champion can help, use our FSCS tool or call us on 0800 011 9705 to check your provider’s banking licence.
Alternatively, contact us to find out more about our Cash Advice Service – maximise your savings interest and ensure that you have the protection you require for your business’s reserves.
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