Bank Deposit Protection Rules for Businesses

In December 2010, new limits were announced for the levels of protection available for different investments underwritten by the Financial Services Compensation Scheme (FSCS).

The FSCS protects the deposits of small companies, which are those which meet two of three criteria:

• they have fewer than 50 employees;
• their turnover is not more than £6.5 million per year; and
• the balance sheet total is less than £3.26 million.

The £85,000 limit is also available for unincorporated organisations, partnerships and sole traders, but in the latter case the limit would apply in total to all (i.e. business and personal) accounts held by the customer with the same lender.

One possible area for concern is whether deposits held in different members of the same banking group are covered separately. In this case, if each of the banks is separately authorised by the Financial Conduct Authority, the FSCS would pay compensation up to the limit of £85,000 per person (from 31 December 2010, the limit is being raised to the sterling equivalent of €100,000), per authorised institution. If each of the banks is not separately authorised but is covered by the parent company's authorisation, the FSCS would pay compensation up to the limit of £85,000 once, irrespective of how many different group members a person held accounts with.

In July 2009, it was announced that the scheme was being improved for those with deposits at and loans from the same bank. These will now be 'netted off' for the purposes of compensation, which will improve the position for some customers.

Deposit takers in the Channel Islands and Isle of Man are not covered by the scheme.