Understanding FSCS Protection for Neobanks in the UK
FSCS protection covers deposits up to £85,000 per person per institution. For neobanks, protection depends on the underlying bank partner. This guide explains how to verify coverage, what happens if a neobank fails, and how to maximize your protection.
The Financial Services Compensation Scheme (FSCS) is the UK's statutory deposit insurance, protecting up to £85,000 per person per authorised institution. For neobanks, which are app-only financial providers often without their own banking licence, understanding how FSCS protection applies is essential to ensure your money is safe. This guide explains the mechanics of FSCS coverage for neobanks, how to verify it, and what to do to maximise your protection.
How FSCS Protection Works for Neobanks
The Role of Partner Banks
Most neobanks in the UK do not hold their own banking licence. Instead, they partner with a traditional bank that is FSCS authorised. When you open an account with such a neobank, your money is actually held in a pooled account at the partner bank in a third-party arrangement. Under FSCS rules, you are still protected as the beneficial owner up to the £85,000 limit per person per partner bank, not per neobank. For example, if you have a Starling Bank account (which holds its own licence) and a Monzo account (which originally used a partner bank), the protection applies separately if the partner banks are different.
£85,000 Limit per Person per Institution
The £85,000 limit applies to all deposits you hold with the same financial institution. For neobanks using the same partner bank, your total across all those neobanks would be aggregated for FSCS purposes. However, if the neobank holds its own licence (like Starling or Monzo now holds a full banking licence), your protection is per neobank. Always check whether the neobank is directly authorised by the Prudential Regulation Authority (PRA) and FSCS covered, or whether it relies on a partner.
Which Neobanks Are FSCS Protected?
Licensed vs Partnered Neobanks
Some neobanks, such as Starling Bank, Monzo, and Atom Bank, hold full UK banking licences and are directly covered by the FSCS. Others, like Revolut, operate under an e-money licence, which means deposits are not automatically FSCS protected. However, Revolut has arranged for FSCS coverage through a partner bank for its main accounts. It is crucial to read the terms and check the FSCS register to confirm the status of your neobank.
How to Verify Protection
To verify if your neobank is FSCS protected, check the FSCS website or the firm's own literature. Look for a statement like "Your deposits are protected by the FSCS up to £85,000" in the terms and conditions. You can also search the FCA register for the firm's authorisation status. If the neobank is not directly authorised, it should clearly state which bank holds your funds and whether that bank is FSCS covered. Remember that protection eligibility may depend on your personal circumstances (e.g., joint accounts count separately, and temporary high balances from events like house sales may be covered for a limited period).
What Happens If a Neobank Fails?
If a neobank with its own banking licence fails, the FSCS will automatically compensate you within seven days in normal times, up to the £85,000 limit. For neobanks that use a partner bank, your claim would be against the partner bank. However, if the neobank itself becomes insolvent, your money held at the partner bank may still be ringfenced and accessible. In the unlikely event that the partner bank also fails, you would claim from the FSCS. The process is generally straightforward, but it is wise to keep records of your balances and the partner bank details.
Tips to Maximize Your FSCS Protection
- Spread your deposits across multiple FSCS authorised institutions, not just multiple neobanks using the same partner bank.
- Use a mix of neobanks that hold their own licence (e.g., Starling, Monzo) and traditional banks to increase total coverage.
- Keep your total deposits at any single institution below £85,000 to ensure full protection.
- Be aware that joint accounts are covered separately, with each named person entitled to protection for their share.
- For temporary high balances (e.g., from property sales), inform your provider so they can arrange temporary higher coverage if available.
Ultimately, understanding FSCS protection for neobanks in the UK empowers you to use these innovative services with confidence. Always check the official FSCS register and the neobank's documentation for the most accurate and up-to-date information. If in doubt, contact the neobank's support team to clarify how your money is safeguarded.