The Financial Services Compensation Scheme (FSCS) was established as part of the Financial Services and Markets Act 2000 to protect savers, compensating them if their savings provider ceased trading and was unable to return their funds.
FSCS deposit protection
Currently, individuals’, charities’ and businesses’ cash deposits are protected by the FSCS up to the value of £85,000 if held by an authorised bank or building society, with joint account holders benefitting from up to £170,000 protection.
Temporary high balance protection
Temporary high balance protection was introduced in 2015. It provides protection of up to £1 million per individual, per authorised bank or building society for a period of up to six months for lump sums arising from certain specified major life events, listed here.
All FCA and PRA authorised banks provide FSCS protection
FSCS deposit protection is provided by all banks and building societies authorised by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA). To check if a bank is authorised, their authorisation number (also known as their Firm Reference Number (FRN)) will be published on their website or can be checked using the Financial Services Register.
It’s important to note that some banks and building societies share an FRN with one or more financial institutions that are part of the same banking group. In these circumstances the FSCS treats the providers sharing the FRN as a single bank and therefore only protects deposits of up to £85,000 in total across those institutions.
For example, if bank A and bank B share an FRN, and a business deposited £80,000 with bank A, and £80,000 with bank B, and both banks were to default, the depositor would only receive £85,000 in compensation for the £160,000 deposited and would suffer a £75,000 loss.
FSCS protection for your business clients
For businesses, FSCS protection has historically been quite complicated. Until 2015, there were restrictions to the provision of FSCS deposit protection for companies (designed to exclude large corporates). To qualify for protection, a company had to employ fewer than 250 staff, have a turnover of no more than £44m and a balance sheet of no more than £39m. These restrictions no longer apply, and all companies are now protected by the scheme irrespective of their size.
It’s important to note however that whilst two individuals opening a joint account can benefit from £170,000 FSCS protection (effectively double the FSCS protection provided to an individual depositor) the same does not apply to a business where the company is a partnership of two people. The business, as an entity, will only benefit from up to £85,000 FSCS protection per authorised bank or building society.
How your client can maximise their FSCS protection
If your clients have in excess of £85,000 in cash (or £170,000 as joint account holders) and want to have the peace of mind that every penny is 100% protected, they can diversify their cash across additional authorised banks and building societies (that are not part of the same banking group) to benefit from the incremental FSCS protection that each provides.
To simplify this process, enabling your client to compare and research hundreds of deposit rates from more than 40 authorised banks, and open as many accounts as they require in a matter of clicks, the Flagstone platform could be the ideal solution.
Not only will your client have the peace of mind that their cash deposits are FSCS protected, but they can also benefit from market-leading interest rates and 24/7 visibility of their cash portfolio.
1 The Financial Services Compensation Scheme protects deposits of up to £85,000 per depositor per authorised bank. For more information please refer to www.FSCS.org.uk
2 Net of Flagstone’s Annual Management Fee of 0.225%. Correct as at 16th April 2020.
3 Net of Flagstone’s Annual Management Fee of 0.200%. Correct as at 16th April 2020.