What does the FSCS actually do? 

It was set up in 2001 to pay compensation to customers of financial firms that go bust or default and are unable to repay claims against them. 

Which companies are covered? 

The FSCS covers business conducted by firms authorised by the Financial Services Authority. European firms authorised by their home state regulators and operating in the UK may also be covered.

What sort of financial holdings does it extend to? 

The FSCS protects bank and building society deposits, insurance policies, insurance broking (including connected travel insurance where the policy is sold alongside a holiday or other related travel), investment business (including pensions) and home finance such as mortgages. 

Are there limits to the protection? 

Yes. Compensation is only paid for actual financial loss; the amount varies according to the type of business you’re claiming against. 

Limits apply per person, per firm and per claim category. With effect for five years from January 2011, the payout for savings deposits is 100 per cent of your loss, up to £85,000 per person per firm. For joint accounts, the limit is doubled to £170,000.

The current investment, insurance and home finance limits apply to firms in default after 1 January 2010; there are lower limits for those that defaulted before that date. For investments and home finance, the FSCS will pay compensation of 100 per cent of your loss, up to a maximum £50,000 per person, per firm. For insurance advice and business it’s 90 per cent of your claim with no upper limit (compulsory insurance is protected in full). 

What happens if I have accounts with several firms owned by the same parent company? 

A single £85,000 limit applies to the total of your accounts with that parent company. So if you have a deposit account of, say, £30,000 with Nationwide, an Isa worth £45,000 with Derbyshire building society and a further £20,000 with Cheshire building society, all of which are owned by Nationwide and covered by a single FSA licence, only £85,000 of that total of  £95,000 is eligible for compensation. 

If I hold funds in a fund supermarket, what protection do I have if it goes bust? 

The fund supermarket is just an administration ‘platform’. If it ceases trading, your investments with the various fund managers selling through it will remain intact with those management firms. 

How far are personal pensions covered? 

Personal pensions and annuities are generally thought of as investment products, but are actually often insurance contracts, covered by the FSCS insurance rules. However, if you have a mis-selling claim (for instance, if you were given bad advice to transfer your benefits from your employer’s scheme to a personal pension scheme), it counts as an investment issue.

If your Sipp provider folds, provided the underlying investments are held with external managers, they are unaffected by the closure of the Sipp firm and you will not need to make a claim. Only if some or all of the holdings themselves are managed by the Sipp provider will you have grounds for a claim. 

What happens if my IFA goes into liquidation? 

If your investments or insurance products are all in place when the IFA goes bust, they should not be affected and you’ll have no cause for compensation. But if you believe you may have been mis-sold investments or that the IFA has somehow defrauded you, or if they hadn’t yet invested your money when they ceased trading and are now unable to repay it, then you will be protected under the FSCS’s rules.

If my investment or insurance company defaults, how do I go about getting compensation? 

Contact the FSCS customer service team on 0800 678 1100. If it has already been following the liquidation of a firm, it may contact customers with a claim form, but you don’t have to wait for that.