What Is the Deposit Protection Limit for Neobanks in the UK
The UK's Financial Services Compensation Scheme (FSCS) protects deposits up to £85,000 per person per authorised bank. Neobanks often use partner banks for safeguarding, so your funds may be covered under the same limit. This article explains how it works and what to check for your safety.
When you deposit money in a UK neobank, you might wonder how safe your funds are. Unlike traditional high street banks, many neobanks do not have their own banking licence. Instead, they partner with established banks to hold your deposits. This means your money is typically protected by the Financial Services Compensation Scheme (FSCS), but the rules can be nuanced. This article breaks down the deposit protection limit for neobanks in the UK, helping you understand your coverage.
What Is the FSCS Deposit Protection Limit?
The Financial Services Compensation Scheme (FSCS) is the UK's statutory deposit protection scheme. It protects deposits up to £85,000 per person, per authorised bank (or £170,000 for joint accounts). This limit applies to all FSCS-covered accounts, including current accounts, savings accounts, and cash ISAs. If your bank fails, the FSCS will aim to pay you back within seven working days.
How Does Deposit Protection Apply to Neobanks?
Most UK neobanks are not banks themselves but are electronic money institutions (EMIs) or authorised payment institutions. They hold your funds in a pooled account with a partner bank. The FSCS protection depends on the partner bank's status and how your money is ring-fenced.
Partner Bank Protection
If your neobank partners with an FSCS-regulated bank, your deposits are usually covered up to £85,000 per person. However, because multiple customers' funds are pooled, the protection applies per individual, not per pool. The partner bank must ensure each customer's deposit is identifiable. Examples include Monzo (partnered with ClearBank) and Starling Bank (which has its own banking licence and is directly FSCS-protected).
Neobanks with Their Own Banking Licence
Some neobanks, like Starling Bank and Atom Bank, hold a full UK banking licence. These are directly regulated by the FCA and PRA and are covered by the FSCS in the same way as traditional banks. Your deposits up to £85,000 are protected per person per licensed bank.
Neobanks Without a Banking Licence
Neobanks operating as EMIs (e.g., Revolut or Wise) hold customer funds in safeguarding accounts with third-party banks. Under FCA rules, these funds must be kept separate from the company's own money. However, the FSCS protection is not automatic. Some EMIs choose to be covered by the FSCS, while others may have alternative protection arrangements. Always check the specific terms.
How to Check Your Neobank's Deposit Protection
- Look for the bank's FCA authorisation number on the FCA register.
- Check whether the neobank is directly regulated by the FCA and PRA (banking licence) and is a recognised FSCS member.
- For non-bank neobanks, verify if they participate in the FSCS or have a similar protection scheme.
- Read the terms and conditions or the FAQ section on the neobank's website regarding deposit protection.
- Contact customer support if you are unsure.
What Happens If a Neobank Fails?
If a neobank with its own banking licence fails, the FSCS will compensate you up to £85,000. For neobanks without a licence, the process depends on the protection arrangement. If the funds are held in a safeguarding account with a partner bank and the neobank goes bust, the partner bank should return your money, but it may not be covered by the FSCS if the partner bank also fails. If the neobank has FSCS coverage via a partner, you can claim from the FSCS.
Special Considerations: Temporary High Balances and Joint Accounts
If you have temporarily large deposits (e.g., from a house sale), the £85,000 limit may be insufficient. Some banks offer temporary high balance protection for up to six months in such cases. However, this is not guaranteed for neobanks. For joint accounts, the limit is £170,000 per account (two individuals). Ensure you split deposits across multiple FSCS-covered institutions if you exceed these limits.
Frequently Asked Questions About Neobank Deposit Protection
Is my money safe in a neobank?
Generally, yes, as long as the neobank is properly regulated and your funds are protected by the FSCS or a comparable scheme. However, always verify the specific protection.
Can I get more than £85,000 protection?
You can increase your protection by spreading your deposits across multiple banks (and across different banking groups). Joint accounts allow up to £170,000 per couple. Some neobanks offer multi-currency accounts; note that foreign currency deposits are also covered but are converted to GBP for the £85,000 limit.
Do I need to apply for FSCS coverage?
No, the FSCS automatically covers eligible deposits. You do not need to sign up. However, you must have an account with an FSCS-participating institution.
Conclusion
The deposit protection limit for neobanks in the UK is generally the same £85,000 per person under the FSCS, but the application depends on whether the neobank has its own banking licence or partners with a licensed bank. Always check the specific protection status of your neobank to ensure you are covered. By understanding these nuances, you can safely enjoy the benefits of modern digital banking.