The levels of protection available for different investments underwritten by the Financial Services Compensation Scheme (FSCS) are detailed on their website.
The FSCS protects the deposits of small companies, which are those which meet two of three criteria:
- they have fewer than 50 employees;
- their turnover is not more than £6.5 million per year; and
- the balance sheet total is less than £3.26 million.
Protection is limited to £85,000 per institution per investor. Protection is also available for unincorporated organisations, partnerships and sole traders, but in the latter case the limit would apply in total to all (i.e. business and personal) accounts held by the customer with the same lender.
One possible area for concern is whether deposits held in different members of the same banking group are covered separately. In this case, if each of the banks is separately authorised by the Financial Conduct Authority, the FSCS would pay compensation up to the limit of £85,000 per person per authorised institution. If each of the banks is not separately authorised but is covered by the parent company's authorisation, the FSCS would pay compensation up to the limit of £85,000 once, irrespective of how many different group members a person held accounts with.
There is temporary cover of up to £1million for temporary high balances (e.g proceeds of a house sale) with a bank, building society or credit union that fails.
If the customer has deposits at and loans from the same bank. These are now 'netted off' for the purposes of compensation, which will improve the position for some customers. However, since companies and their directors are separate people in law, netting off would not occur in these circumstances.
Deposit takers in the Channel Islands and Isle of Man are not covered by the scheme.