Under the Financial Services Compensation Scheme (FSCS), eligible deposits are protected up to £85,000 per account holder, per banking licence. This protection applies if a bank, building society, or credit union fails and is unable to return your funds.
In practical terms, this means that if your business holds, for example, £300,000 in a single account, only £85,000 of that balance would be guaranteed under the FSCS. The remaining £215,000 could be at risk in the event of a bank collapse.
How to Reduce Your Exposure
To manage this risk and improve the security of your business’s cash holdings, consider the following strategies:
1. Diversify Across Banking Licences
Be aware that some banks operate under the same FSCS licence, meaning your protection limit is shared between them. For example, NatWest and RBS operate under a single banking licence, while institutions like HSBC hold separate licences. Spreading funds across different licences ensures that more of your balance is protected.
2. Use Multiple Banking Institutions
Consider distributing surplus cash across multiple business savings accounts with different banks. This approach helps to maximise FSCS protection and reduces dependency on a single provider.
3. Utilise Your Group Structure
If your business operates as part of a group, you may be able to transfer excess funds to a holding company or another group entity. This not only helps protect assets from trading risks but can also provide additional layers of financial resilience.
4. Maintain a Contingency Banking Relationship
Establishing and maintaining a secondary banking relationship offers operational flexibility and ensures you have a “Plan B” should your primary bank experience difficulties. This simple step can help maintain continuity and reduce potential disruption to your business operations.
