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What is FSCS and why does it matter?

Remember back in 2007 when queues of people waited to withdraw their money from the stricken Northern Rock bank? Customers arrived before dawn to ensure they could collect their cash amid panic that the bank was going to fail and take their savings with it.

It was the first run on a bank in over a century.

That, as you may be aware wasn’t the end of it. The bank was nationalised, but others fell over. Icesave, which had offered ‘too good to be true’ savings rates went bust and Bradford & Bingley also failed.

Thankfully, the panic was partly managed by people knowing about the Financial Services Compensation Scheme (FSCS). They were able to compensate people up to £50,000 for money they thought was lost.

Today, you might recognise FSCS logo that appears when you open your banking apps, go online or receive letters about your financial products, but you might not know exactly what it’s there for.

So, here’s a quick guide to FSCS, how it helps keep your finances safe and why it’s important that any financial products you own are FSCS protected.

What is FSCS?

FSCS is a compensation fund that protects customers of UK authorised financial services firms. These firms range from banks and building societies to mortgage advisers, pension providers, insurance firms, investment companies, debt management firms and credit unions.

Set up by the Government, FSCS is impartial and independent. It provides a free service to help those people who find that their financial provider has failed. While they cover a huge range of financial products, that each have a compensation limit, you should be aware that they do not cover everything – like payday loans, Christmas Clubs or peer to peer lenders.

It’s a significant guarantee that helps British savers feel confident their money is safe. That’s important when you are thinking about how to make the most of your money. Whether it’s your savings, investments or insurances, they’re all part of how we plan for the future. Having that FSCS protection is a precaution that helps give you peace of mind and one less thing to worry about when you’re making important financial decisions.

What does FSCS cover?

FSCS can pay out compensation if you lose money because a bank, building society, credit union, financial adviser, debt management firm or insurance company goes bust and you risk being left out of pocket – as long as they are FSCS protected.

It also investigates and may compensate when people say they have been mis-sold a financial product or given incorrect advice and lost money as a result of this, but the firm or person responsible has gone out of business.

For example, if you’ve been mis-sold an insurance policy and the provider has gone bust, or if the company has simply gone bust and left you uninsured or unable to claim then FSCS will look to step in.

If you’ve received poor investment advice and the company has gone bust then you may qualify for FSCS help. But that’s different to making investments that then lose money because they perform badly; you have to be able to show negligence, fraud or bad advice.

For more information on what FSCS covers, you can find out more on their website at www.fscs.org.uk

How much will FSCS pay out?

FSCS is probably best known for the protections it offers savers; guaranteeing up to £85,000 per person, per institution if a bank, building society or credit union fails and can’t repay deposits (a huge increase from the £50,000 it used to offer back in 2007).

If you have a joint account then that protection is doubled.

Compensation for savings lost does not require an online claim at all – it’s completely automatic and there are no charges or commission either. FSCS will get you your money back within seven days

Most other losses will require a claim to be made by you. You can do this using the online claims service on the FSCS website. There are no charges or commission fees to pay if you go direct to FSCS. There is also a call service and live chat, so they can help you through the process and ensure you complete the process correctly.

If you were mis-sold a mortgage then the scheme will only cover any financial loss you have suffered as a result. For claims made after 2010 the maximum you can claim against one firm is £50,000.

For compulsory insurance like car insurance, FSCS will look to pay back the full amount of any claim, but with other insurance policies like pet insurance or home insurance it will pay 90% of the value of the claim.

Since 2010, FSCS scheme will pay out a maximum of £50,000 for mis-selling claims against a single firm.

This guide is the best way to understand what you might be able to claim compensation for and how much you could potentially get.

Those compensation levels will be increasing in nearly all cases from 1 April 2019.

Will FSCS always compensate me if I lose money?

You won’t be covered by FSCS if the company or business responsible is still operating. Then you will need to raise a complaint to the Financial Ombudsman Service if you’re still not satisfied after complaining to the firm itself.

It’s also important to remember the scheme only pays out if the company responsible was authorised by the Prudential Regulation Authority or the Financial Conduct Authority.

Checking that is really simple, just type the company name into the FCA search engine.

There are many situations where you might lose money but you won’t qualify for compensation. For example, if the value of your investments goes down, then that’s not something FSCS would deal with unless you had been mis-sold and the firm had gone bust or there’s a clear case of fraud or misrepresentation.

You also need to bear in mind that FSCS is a scheme of last resort, it shouldn’t be relied on to keep your money safe at all times. Because of that, it’s really important to take steps to keep your finances as secure as possible.

That means checking the small print of any contract before signing it, checking a firm is legitimate, is FCA or PRA authorised (and is therefore covered by FSCS) and has acceptable reviews before you deal with it.

Okay, how do I claim via FSCS?

Making a claim to FSCS is pretty straightforward. You can apply online and the website will take you through exactly what information you need to provide.

If you don’t have all your documents handy then you can save your claim and come back to it, so it’s really simple to complete and you won’t feel rushed.

How long will my FSCS claim take?

Once you’ve submitted your claim, you can track its progress online. If FSCS needs to investigate then it can take as long as six months – or three months for PPI claims.

Savings are compensated automatically, so no claim necessary and this will only take up to seven days for money to be returned to you directly.

For more information on FSCS and the different financial products they help protect, you can visit their website at www.fscs.org.uk