How FSCS insurance can safeguard your startup’s cash

An Introduction to FSCS

The Financial Services Compensation Scheme (FSCS) in the UK provides protection for depositors if a bank or building society fails. It guarantees client deposits, ensuring you won’t lose money up to a certain limit if your bank goes under.

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How Much Money FSCS Covers‍

The standard amount of FSCS insurance is £85,000 per depositor, per bank. This covers deposit products such as current accounts, savings accounts, and cash ISAs.*

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Extending FSCS Coverage

• Multiple Banks: To extend coverage beyond £85,000, spread your funds across multiple banks. Each bank provides separate coverage.
• Sweep Networks: Some financial institutions offer sweep networks, which distribute your funds across several banks, thereby increasing your total insured amount.

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Monitoring Bank Stability

• ‍Bank Audits: The FSCS monitors the financial health of banks through regular audits. These audits assess the banks’ stability and compliance with regulations, helping to identify potential risks.‍
• Finding FSCS-Insured Banks: You can check whether a bank is FSCS insured and review its stability through the FSCS website. Make sure that two banks you use are not covered by the same banking license, as this would limit you to £85,000 across both banks.

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Handling Bank Failures

In case a bank fails, the FSCS ensures depositors are compensated up to the insured limit. The FSCS either transfers your deposits to a solvent bank or returns the insured amount directly to you.

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Additional Protection Beyond FSCS

For deposits exceeding FSCS limits, consider other risk-mitigating measures:

• ‍Treasury Bills and Bonds: These are government-backed securities with low risk, suitable for protecting surplus cash.‍
• Money Market Funds: These funds invest in high-quality, short-term securities and offer liquidity and low risk.‍
• Certificates of Deposit (CDs): CDs offer higher yields than regular savings accounts in exchange for leaving funds deposited for a set period.

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Practical Tips for UK Startups

1. Diversify Deposits: Spread your funds across multiple FSCS-insured banks to maximise coverage.
2. Evaluate Investments: Consider low-risk, high-liquidity investments for surplus cash to earn yields while maintaining safety.
3. Regularly Review Cash Management: Continuously assess your cash management strategy to ensure maximum protection and efficiency.

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Conclusion

FSCS insurance provides a robust foundation for protecting your startup’s cash. By leveraging multiple banks, considering sweep networks, and exploring low-risk investments, UK startups can ensure their funds are well-diversified, allowing them to focus on growth with peace of mind.

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By following these strategies, UK startups can effectively navigate the financial landscape, securing the necessary protection for their funds and ensuring long-term financial stability.

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Disclaimer

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*FSCS coverage subject to company status.

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The content in this article is provided for general information purposes only and does not constitute financial advice. The information presented here should not be construed as a recommendation to buy, sell, or hold any investment or security, nor as an endorsement of any particular financial strategy. Always consult with a qualified financial advisor before making any investment decisions. Investing involves risks, including the potential loss of capital. Past performance does not guarantee future results.