The Financial Services Compensation Scheme (FSCS)
Financial regulation aims to reduce the risk of firms failing.
However, no financial system can remove that risk completely.
A bank, insurer, investment firm or other financial business could still fail.
Therefore, customers need another layer of protection.
This is where the Financial Services Compensation Scheme, usually shortened to FSCS, becomes important.
In simple terms:
The FSCS can compensate eligible customers when certain authorised financial firms are unable to meet claims against them.
However, the protection depends on the type of financial product, the firm and the circumstances.
Therefore, it is important to understand both what the FSCS protects and what it does not protect.
What Does FSCS Stand For?
FSCS stands for:
Financial Services Compensation Scheme
It is the UK’s statutory compensation scheme for customers of authorised financial services firms.
Therefore, it forms part of the wider system of consumer protection.
For example, the FSCS can provide protection for eligible:
- bank deposits
- building society deposits
- credit union deposits
- insurance
- investments
- financial advice
- mortgage advice and arranging
However, different rules and compensation limits can apply to different types of claim.
As a result, you should never assume that all financial losses receive the same protection.
Why Is the FSCS Needed?
Imagine a customer has money saved with a bank.
The bank then fails and cannot return the customer’s money.
Without a compensation system, the customer could suffer a large financial loss.
Instead, eligible deposits may be protected by the FSCS.
Therefore:
Financial firm fails
↓
Customer has an eligible claim
↓
FSCS protection may apply
↓
Eligible compensation may be paid
This helps protect customers.
In addition, it can support confidence in the wider financial system.
Is the FSCS a Regulator?
No.
This is an important difference.
The FSCS does not regulate firms in the same way as the FCA or PRA.
Instead, its main purpose is to provide compensation when eligible customers suffer certain losses because an authorised firm cannot meet claims against it.
Therefore:
FCA
Regulates conduct and markets within its responsibilities
PRA
Regulates the financial strength of certain firms
FSCS
Provides compensation in eligible cases when firms fail
These organisations have different jobs.
When Can FSCS Protection Apply?
FSCS protection can generally become relevant when an authorised financial firm is unable, or likely to be unable, to meet claims against it.
You may hear this described as the firm being in default.
For example, imagine an authorised financial firm has failed and no longer has enough money to meet eligible customer claims.
The FSCS may then consider whether compensation is available.
However, a customer cannot simply claim from the FSCS because they are unhappy with a financial product.
Instead, the relevant FSCS conditions must be met.
What Is an Authorised Firm?
An authorised firm has permission to carry out certain regulated financial activities.
Depending on the type of firm, authorisation may involve the FCA, PRA or both.
FSCS protection generally relates to eligible business carried out by firms covered by the scheme.
Therefore, checking the firm’s regulatory position can be important.
Customers can use official regulatory information to help confirm whether a firm is authorised.
Deposit Protection
One of the best-known parts of the FSCS is deposit protection.
This covers eligible money held with UK-authorised:
- banks
- building societies
- credit unions
From 1 December 2025, the standard FSCS deposit protection limit is:
£120,000 per eligible person, per UK-authorised firm
Therefore, if an authorised deposit-taking firm fails, an eligible customer can generally be protected up to this limit. (FSCS)
A Simple Deposit Example
Imagine Sarah has:
£80,000
in eligible savings with one UK-authorised bank.
The bank fails.
Because £80,000 is below the £120,000 standard protection limit, the full £80,000 would normally fall within the standard deposit limit, assuming the deposits are eligible.
Therefore:
Eligible deposit: £80,000
FSCS standard limit: £120,000
Amount within limit: £80,000
However, if Sarah held a larger amount, the calculation could change.
What If the Customer Has More Than £120,000?
Now imagine Sarah has:
£150,000
with the same authorised bank.
The normal standard protection limit is:
£120,000
Therefore, under the standard limit, £30,000 would sit above that protection level.
However, special rules can apply to certain temporary high balances.
We will look at those shortly.
Per Person, Per Authorised Firm
This phrase is extremely important:
£120,000 per eligible person, per UK-authorised firm
It does not simply mean £120,000 per bank account.
For example, a customer could have several accounts with the same authorised firm.
Suppose they have:
Current account: £20,000
Savings account: £70,000
Cash ISA: £50,000
Total:
£140,000
If all three accounts sit with the same authorised firm, they are generally considered together for the standard deposit protection limit.
Therefore:
Total eligible deposits: £140,000
Standard limit: £120,000
The fact that the money is split between three accounts does not automatically create three separate £120,000 limits.
Why Does the Authorised Firm Matter?
Financial brands can sometimes share the same banking authorisation.
Therefore, having money with two different brand names does not always mean the customer has two separate FSCS limits.
For example, two banking brands could operate under the same authorised firm.
If so, eligible deposits may need to be added together when applying the limit.
Therefore, customers should check the actual authorised firm rather than relying only on the name shown on the account.
This is an important practical point.
A Simple Shared-Authorisation Example
Imagine:
Brand A savings: £80,000
and:
Brand B savings: £70,000
At first, the customer may think they have £80,000 protected with one bank and £70,000 protected with another.
However, suppose both brands share the same UK banking authorisation.
Their eligible deposits could then be considered together:
£80,000 + £70,000 = £150,000
Therefore, the standard £120,000 limit would apply across the combined eligible deposits.
As a result, understanding the banking licence can matter just as much as understanding the brand.
Joint Accounts
Joint accounts can provide protection for each eligible account holder.
For example, imagine a couple jointly hold:
£200,000
with one authorised bank.
If both account holders are eligible, each person’s share can normally receive protection up to the individual limit.
Therefore, a jointly held account may potentially receive more protection than a single-person account.
However, the exact position depends on ownership and eligibility.
So, always apply the FSCS rules to the actual circumstances.
Temporary High Balances
Sometimes, a person may temporarily hold much more money than usual.
For example, this could happen after:
- selling a private home
- receiving certain insurance payments
- receiving certain compensation
- receiving an inheritance
- receiving some other qualifying payments
These can sometimes qualify as a temporary high balance, or THB.
Therefore, additional temporary protection may apply above the normal £120,000 deposit limit.
How Much Temporary Protection Is Available?
From 1 December 2025, certain eligible temporary high balances can receive protection of up to:
£1.4 million
This protection normally applies for up to six months.
For certain temporary high balances connected with personal injury or incapacity, different rules apply and there may be no monetary upper limit. (Bank of England)
Therefore, a person who has recently sold their main home may temporarily have much greater FSCS deposit protection than the standard £120,000 limit.
A Property Sale Example
Imagine David sells his private home.
After paying off his mortgage and other costs, £350,000 is paid into his bank account.
Normally, the standard deposit protection limit would be £120,000.
However, because the extra money comes from a qualifying property transaction, temporary high-balance protection may apply.
Therefore, much more than £120,000 could potentially be protected for the temporary protection period.
This is particularly relevant to mortgage and property professionals.
Why Does Temporary Protection Matter to Mortgage Customers?
A home sale can create a short period when a customer holds a very large amount of cash.
For example:
Property sold
↓
Mortgage repaid
↓
Large amount of equity paid into bank account
↓
Customer waits to buy another home
During this period, the customer’s bank balance could be far above the normal £120,000 protection limit.
Therefore, temporary high-balance rules can become very important.
FSCS and Mortgages
A normal mortgage balance is different from a bank deposit.
For example, suppose a customer owes a lender:
£200,000 mortgage
The FSCS does not simply pay off that mortgage if the lender fails.
Instead, arrangements would normally be made for the mortgage debt to continue or be transferred.
Therefore, customers generally still owe their mortgage even if the original lender experiences serious financial problems.
This is an important distinction.
FSCS and Mortgage Advice
However, the FSCS can also be relevant to mortgage advice and arranging.
Imagine an authorised mortgage intermediary provides regulated mortgage advice.
The firm later fails.
Meanwhile, a customer has a valid claim arising from eligible mortgage advice or arranging activity.
Depending on the circumstances and FSCS rules, compensation may be available.
Therefore, FSCS protection does not only relate to money sitting in bank accounts.
It can also apply to certain regulated financial services.
A Mortgage Advice Example
Imagine a customer receives regulated mortgage advice from an authorised firm.
The advice causes the customer a financial loss for which the firm is legally responsible.
Later, the firm goes out of business and cannot meet the claim.
The customer may potentially have an eligible claim through the FSCS.
Therefore:
Regulated advice
↓
Customer suffers qualifying loss
↓
Firm is unable to meet claim
↓
FSCS may consider compensation
However, eligibility depends on the specific circumstances and FSCS rules.
FSCS and Investments
The FSCS can also cover certain investment claims.
For example, protection may potentially apply when an authorised investment firm fails and owes an eligible customer money.
However, there is an important difference between:
A firm failing
and
An investment simply losing value
Suppose a customer invests £10,000 and the investment falls to £8,000 because markets fall.
That does not automatically create an FSCS claim.
Investment values can rise and fall as part of normal investment risk.
Therefore:
FSCS protection does not remove ordinary investment risk.
FSCS and Insurance
Certain eligible insurance claims may also receive FSCS protection if an authorised insurer fails.
For example, suppose an insurance company becomes unable to meet valid claims.
The FSCS may provide protection according to the relevant insurance rules.
This is important because insurance can cover serious risks.
For example:
- property damage
- death
- illness
- liability
Therefore, insurer failure could otherwise cause significant harm.
FSCS Protection Is Not Unlimited
It is very important not to say:
The FSCS protects all financial products.
That would be incorrect.
Instead, protection depends on several factors.
For example:
- the type of financial product
- whether the activity is covered
- whether the customer is eligible
- whether the firm is covered
- the reason for the loss
- the compensation limit
Therefore, always check the relevant FSCS rules.
Compensation Is Not the Same as a Complaint
Another important distinction is between the:
FSCS
and the:
Financial Ombudsman Service (FOS)
They perform different roles.
Financial Ombudsman Service
Helps resolve eligible complaints between consumers and financial firms.
Meanwhile:
FSCS
Can provide compensation in eligible cases when firms cannot meet claims against them.
Therefore, the basic difference is:
FOS → Complaint dispute
FSCS → Firm cannot meet eligible claim
This difference is very important for CeMAP.
A Simple FOS Versus FSCS Example
Imagine a customer believes their mortgage adviser treated them unfairly.
The firm is still trading.
First, the customer would normally complain to the firm.
If the complaint remains unresolved, the customer may be able to take the matter to the Financial Ombudsman Service.
Now imagine instead that the adviser firm has failed and cannot pay a valid claim.
In that case, the FSCS may become relevant.
Therefore, the circumstances determine which organisation may help.
Who Pays for the FSCS?
The FSCS is funded by levies on authorised financial services firms.
Therefore, it is not normally funded through customers paying a separate FSCS charge when they open an account.
Instead, eligible financial firms contribute towards the compensation scheme.
As a result, the financial services industry helps fund the protection system.
Why Is the FSCS Important for Financial Stability?
The FSCS mainly exists to protect eligible customers.
However, deposit protection can also support confidence in the banking system.
Imagine people believed all of their savings could disappear immediately if a bank failed.
They might rush to withdraw money whenever they became worried about a bank.
This could make financial problems worse.
Instead, deposit protection gives eligible customers greater confidence that money within the protection limits is protected.
Therefore:
Deposit protection
↓
Greater customer confidence
↓
Reduced fear of losing eligible savings
↓
Supports confidence in the financial system
So, consumer protection and financial stability can be closely linked.
How Does the FSCS Connect to the PRA?
The PRA has an important role in the deposit-protection framework.
For example, it sets rules relating to deposit protection and determines the deposit protection limit.
The standard limit increased from £85,000 to £120,000 on 1 December 2025. (FSCS)
Therefore:
PRA → Prudential rules and deposit protection framework
Meanwhile:
FSCS → Pays eligible compensation
Again, the organisations have different roles.
What Should a Customer Check?
When considering FSCS protection, several questions can help.
First:
Is the firm authorised and covered?
Next:
Is the type of product protected?
Then:
Is the customer eligible?
After that:
What compensation limit applies?
Finally:
Do several brands share the same authorisation?
As a result, FSCS protection should never be judged from the brand name alone.
A Mortgage Adviser and FSCS
Mortgage advisers may need to understand FSCS protection for several reasons.
For example, customers may ask about:
- money held for a property deposit
- proceeds from selling a home
- savings held across several banks
- protection if a financial firm fails
- compensation relating to financial advice
Therefore, advisers should understand the basic protection system.
However, they should also avoid giving customers false certainty.
If the exact protection position is important, the current FSCS rules should be checked.
Don’t Memorise Outdated Limits
FSCS compensation limits can change.
For example, the standard deposit protection limit increased from £85,000 to £120,000 on 1 December 2025. (FSCS)
Therefore, older textbooks, websites or practice questions may show an outdated figure.
This creates an important wider CeMAP lesson:
Always study from current regulatory information.
Financial rules can change.
As a result, checking the current position is essential.
A Simple Protection Example
Imagine Mia has eligible savings of:
£100,000
with one UK-authorised bank.
Because this is below the current £120,000 standard limit, the full amount would normally sit within the deposit protection limit.
Now imagine Mia has another:
£80,000
with a completely separate UK-authorised bank.
If the firms have separate authorisations and all other eligibility requirements are met, each authorised firm has its own standard protection limit.
Therefore, using genuinely separate authorised firms can affect the amount of deposit protection available.
Key Terms to Remember
FSCS
Financial Services Compensation Scheme.
Deposit Protection
Protection for eligible money held with UK-authorised banks, building societies and credit unions.
Standard Deposit Limit
£120,000 per eligible person, per UK-authorised firm from 1 December 2025. (FSCS)
Temporary High Balance
Certain qualifying deposits that can receive higher temporary protection.
Temporary High-Balance Limit
Up to £1.4 million in most qualifying cases, normally for up to six months. (Bank of England)
Authorised Firm
A firm with regulatory permission to carry out relevant regulated activities.
Firm in Default
Broadly, a firm that is unable or likely to be unable to meet claims against it.
FOS
Financial Ombudsman Service.
Quick Knowledge Check
Before moving on, let’s check the main points.
1. What does FSCS stand for?
Financial Services Compensation Scheme.
2. What is the current standard deposit protection limit?
£120,000 per eligible person, per UK-authorised firm.
3. Does the limit apply separately to every account?
No. Eligible deposits with the same authorised firm are generally considered together.
4. Can two different banking brands share the same protection limit?
Yes, if they operate under the same relevant authorisation.
5. What is a temporary high balance?
A qualifying temporary deposit that may receive protection above the normal deposit limit.
6. How much protection can apply to many qualifying temporary high balances?
Up to £1.4 million, normally for up to six months.
7. Does the FSCS protect customers simply because an investment falls in value?
No. Normal investment losses do not automatically create an FSCS claim.
8. What is the basic difference between the FOS and FSCS?
The FOS helps resolve eligible complaints, while the FSCS can compensate eligible customers when a firm cannot meet claims against it.
9. Does a borrower’s mortgage disappear if their lender fails?
No. The mortgage debt generally remains and arrangements are made for the loan to continue or transfer.
10. Why should old FSCS figures be treated carefully?
Because compensation limits and regulatory rules can change.
Quick Summary
To sum up, the Financial Services Compensation Scheme provides an important financial safety net.
If certain authorised financial firms fail and cannot meet eligible claims, the FSCS may provide compensation.
For deposits, the current standard protection is:
£120,000 per eligible person, per UK-authorised firm
Meanwhile, certain temporary high balances can receive additional protection of up to £1.4 million in most cases, normally for up to six months. (FSCS)
However, protection is not automatic for every financial loss.
Instead, it depends on:
The customer
↓
The firm
↓
The financial product or activity
↓
The reason for the claim
↓
The relevant FSCS limit
Therefore, remember:
FCA → Regulates conduct
PRA → Regulates financial safety
FOS → Resolves eligible complaints
FSCS → Compensates eligible customers when firms cannot meet claims
Most importantly, always check current protection limits.
Financial regulation changes over time, and the FSCS deposit limit is a good example of why up-to-date information matters.
Next Page
The Financial Ombudsman Service (FOS)