Five Questions About: The financial services compensation scheme

What is the Financial Services Compensation Scheme?

Banks and building societies in the UK, as well as most overseas banks trading here, are registered with the Financial Services Authority (FSA). This means savers have a degree of protection if the bank goes bust.

How much cover do I have?

The scheme protects the first £50,000 you have saved with any one institution, or up to £100,000 if it's a joint account. However, that cap is only for each banking licence, so if you save £50,000 with one organisation and £50,000 with another then all that money is protected by the FSCS.

So I should simply save into different banks?

In theory yes, but in practice it isn't as simple because some brands share the same banking licence.

For example, HBOS, which is now part of Lloyds Banking Group but retains its own banking licence, offers savings accounts under numerous brands including Halifax, Intelligent Finance and the AA. If you have a savings account with Halifax and another with Birmingham Midshires, only £50,000 would be protected. However, if you had a Halifax account and a Barclays account you'd have £100,000 totally guaranteed because they have separate banking licences.

The mergers and takeovers of the last few years make things even more complicated. At the moment Alliance & Leicester (A&L) has its own banking licence even though it is owned by Santander, so savers with a Santander savings account and A&L account have £100,000 of protection. That will change later this month. From 28 May A&L will share Santander's licence, so the total protection across both brands will drop to £50,000.

How do I check if a company is covered by the scheme?

You can find out if a firm is covered by the FSCS either through the FSA's website or by calling its helpline on 0845 606 1234.

Does anywhere offer a complete guarantee?

Money invested in the Government-backed National Savings & Investments is entirely guaranteed. After the Government bailed out Northern Rock, it guaranteed all customer deposits; however, that protection ends on 24 May. If you opened a fixed-term account during the guaranteed period, your money is fully protected for the lifetime of that bond.