Are business bank accounts protected by the Financial Services Compensation Scheme?

FSCS protection for business bank accounts

The Financial Services Compensation Scheme (FSCS) protects the customers of financial institutions, such as banks, building societies, credit unions, pensions providers, insurers and even investment management companies.

It pays out compensation to affected customers when a financial institution goes bankrupt. For instance, if you had £50,000 in a savings account and the bank that provided the account failed, the FSCS would reimburse you, up to a limit.

The good news is that the FSCS also applies to business bank accounts, although the rules are slightly more complicated. Whether the business has its own protection will also depend on whether you are a limited company or a sole trader.

• Deposits are typically protected regardless of the size of your company. However, you generally won’t get protection if your business is itself a financial institution

• General insurance: The FSCS says that only firms with an annual turnover of less than £1 million are eligible for compensation when making general insurance claims from an insurer that has gone bankrupt. That means larger firms won’t benefit from the protection in that situation. However, for compulsory insurance – for instance, employers’ liability – all firms are eligible, irrespective of their size.

• Investments: Your business must qualify as a ‘small company’ under section 382 of the Companies Act 2006 to be eligible to make a claim for compensation. However, you can only make a claim if your investment company has gone bust. To qualify, your firm must meet two of the three criteria, which are based on annual turnover, balance sheet and number of employees.

How much is protected by the FSCS?

The limits depend on the type of claim you are making. 

Deposits

For deposits, the FSCS protects up to £85,000 per eligible person, per bank, building society or credit union. This applies to banks that failed after January 2017.

If you are a sole trader, and your business bank account is with the same financial institution as your personal bank account, both will count towards the same £85,000 limit. That’s because you and your business are considered to be one legal and financial entity.

If you have a limited company, your business is a separate legal entity. That means that if you and the business both use the same bank, building society or credit union, the personal account will benefit from £85,000 worth of protection, and the business account will have its own separate £85,000 limit.

Insurance

If you bought insurance from a company that failed after October 8, 2020, you should be protected, provided your firm has an annual turnover of less than £1 million.

The level of protection depends on the type of insurance. You will be 100% protected if you bought:

• Compulsory insurance

• Long-term insurance

• Professional indemnity insurance

• Building guarantee policies

You also get 100% protection if you make a claim as a result of the policyholder's death or incapacity due to injury, sickness or infirmity.

You’re 90% protected for all other kinds of insurance.

Investments

Provided you meet the criteria to be counted as a ‘small company’, you can get compensation worth up to £85,000 per eligible person, per company that fails.

How to maximise the benefits of FSCS protection 

If you are a sole trader, it’s possible to boost your protection. If you use your personal account for your business dealings, you will only get £85,000 worth of protection, so setting up a business bank account can help.

Make sure you use different providers for your business banking and your personal banking. That way, each company will benefit from its own £85,000 deposit limit. Likewise, you should use different investment providers for your personal investing to any investing you might do on behalf of your business.

Don’t forget that some brands have different names but share a banking license. That means they count as the same bank for FSCS purposes. For instance, both Virgin Money and Yorkshire Bank count as Clydesdale Bank Plc. Likewise, both HSBC and First Direct count as the same bank. There is a full list of brands that share banking licenses here.

Learn how to set up a business bank account

If you have deposits or investments worth more than £85,000, you might want to consider multiple bank accounts with different providers so you get multiple protection limits. However, this can be an administrative headache.

Which accounts are not protected by the FSCS?

The FSCS only protects you from financial institutions that fail. It doesn’t protect you against loss of income from market fluctuations, your own negligence or fraud.

It also only covers financial institutions that are authorised by the Prudential Regulation Authority. You can use the bank and savings protection checker to see if your business bank account provider is covered.