How does the FSCS protect business bank deposits?

A guide to the Financial Service Compensation Scheme, whether you bank personally, as a sole trader, or as a limited company.

If you’re new to contracting and you’re looking to open a business bank account, there’s one phrase you’re probably seeing a lot as you compare your options: “FSCS-protected.”

What does ‘FSCS-protected’ mean?

But what does this term mean, and how does the FSCS actually protect business bank deposits?

In this guide, exclusively for ITContracting.com, acting VP at leading digital business banking provider Tide, Aiste Krevneviciute, explains how the FSCS works, and what it means for sole traders and limited company directors.

What is the FSCS?

FSCS stands for Financial Services Compensation Scheme.

It’s an independent body that can compensate you if your bank or building society fails while holding your money.

The protection is capped at £85,000 per eligible depositor per provider, and covers only bank account deposits held with providers that are authorised by the Financial Conduct Authority (FCA) or the Prudential Regulation Authority (PRA).

FSCS does not cover broader business banking services.

Here’s how the scheme works:

How the FSCS protects bank deposits

The FSCS protects up to £85,000 of the total deposits held with a single banking provider – whether by you personally (as an individual or a sole trader), or by your company if you’re a limited company director.

The protection applies automatically, and you’ll receive compensation within seven days if your bank fails — but only up to £85,000 per legal entity, even if you held more than that in your account(s).

Think of the protection as being for each separate legal entity banking with a provider, not for individual accounts. This is important to understand when you have multiple accounts or both personal and business banking arrangements.

Example 1: Individual accounts

You hold a total of £100,000 across two personal current accounts with Bank A.

If Bank A goes out of business, you could receive up to £85,000 in compensation from the FSCS, as these accounts belong to the same legal entity (you as an individual).

The remaining £15,000 of your deposits with Bank A are not protected.

Example 2: Separate legal entities

You have a personal account with £85,000 and your limited company has a business account with £85,000, both at Bank A.

If Bank A fails, you could receive up to £170,000 in total compensation — £85,000 for your personal account and £85,000 for your limited company’s account — because these are held by separate legal entities.

Are business bank accounts protected by FSCS?

Yes, but how much compensation you could receive depends on whether you operate your business as a sole trader or as a limited company.

Here’s how the scheme affects these two types of business owners:

FSCS protection for limited company directors vs sole traders

If you run your business as a limited company, you and your business are separate legal entities. As separate bank account holders, you each receive your own FSCS protection.

So, if you have a personal account in your name as an individual depositor and a business account in your company’s name with the same bank, the FSCS protects up to £85,000 in each account, as you and your company are considered separate depositors.

But if you’re a self-employed sole trader, there’s no legal separation between you and your business — and this also applies to your finances. You will have one combined FSCS protection limit of £85,000 across all your accounts with the same bank.

So, you might keep ‘company’ and ‘personal’ funds in separate accounts with the same bank. But, legally, it all belongs to you — and only £85,000 of the total is FSCS-protected.

Finally, let’s look at two important details when opening a business bank account online.

Deposits with different providers from the same group, and FRNs

Today, banks often operate a number of different brands, each aimed at a specific type of customer — limited company directors, freelancers or personal savers, for example.

If you have accounts with different brands from the same group, check that they each have their own separate Firm Reference Number (FRN).

If each brand operates under its own FRN, £85,000 of the deposits you hold with each brand will receive FSCS protection.

But if the group operates all its brands under the same FRN, the FSCS treats them as a single provider and only £85,000 of your deposits across the entire group are protected.

FSCS protection for e-money accounts vs bank accounts

Even though deposits in e-money accounts are not eligible for FSCS protection, an e-money account provider ‘safeguards’ your money by keeping it separate from the funds it uses to run its business, in case it encounters financial difficulty.

Only deposits held in a bank account are FSCS-protected. Check before you open an account online whether you’re getting an e-money account or a bank account.

Looking for a limited company bank account with no monthly fees, plus FSCS protection?

With Tide, you can open a free business bank account online in minutes and not only is there no monthly fee, but up to £85,000 of your deposits are also FSCS-protected on eligible business bank accounts.