Archived article: Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.
Customers with bank accounts in the UK will soon enjoy greater protection if their provider goes bust.
The Prudential Regulatory Authority, the UK Banking and Building societies regulator, has announced that compensation limits will rise from £85,000 to £120,000 under the Financial Services Compensation Scheme as of 1 December 2025 for deposit takers, like banks, building societies, and credit unions. However, the limit will remain at £85,000 for investments, like funds. The cash protection should give people greater peace of mind, but it’s still important to understand how the system works as there are some points to bear in mind.
Protections apply only if the firm that’s holding your money goes bust. It does not apply if you simply pick an investment that does poorly, like choosing a stock where the share price then falls. If you are a DIY investor, you are responsible for the investments you choose and will not receive compensation in that situation.
How does an investment platform protect my money?
An investment platform, like AJ Bell, acts as a service between you and where you want to invest your money. So, if the platform were to go bust, any of the money you had invested through that platform should have protections. This is because the platform isn’t holding on to your money. Instead, the money is now in whatever investment you chose, like a fund, share or bond.
If you have money sitting in your platform account that is not invested, you also have protections. Typically, investment platforms place your cash in a third-party bank account. If anything happened to the banks holding the cash, you would be eligible for the Financial Services Compensation Scheme (FSCS). This scheme currently gives you back up to £85,000 in the event of a financial institution registered with the FCA going bust. From 1 December 2025, the limit on cash deposits held in a UK regulated Bank rises to £120,000, but for investments, it will stay at the current £85,000.
For AJ Bell, cash sitting in your investment account is held by a variety of banks, which means you will get £120,000 of protection at each of the banks that hold a portion of your money. Similarly, any cash invested through the AJ Bell Cash Savings Hub will also enjoy the new £120,000 limit.
How does this work in practice? Let’s say Sally puts £50,000 into her investment account but doesn’t invest that money immediately. The platform provider would split her cash between a few different banks, such as putting £20,000 into Bank A, £20,000 into Bank B, and £10,000 with Bank C. At each bank, she’d have the full FSCS protection (currently £85,000). So, if Bank A went under, her cash at the other banks would be safe, and Sally would get £20,000 through the FSCS for what was held with Bank A.
However, each person only gets the FSCS protection at each institution under their name. So, if Sally separately held £70,000 in a savings account directly with Bank A, she would in total hold £90,000 with them. If Bank A went bust, she’d only get £85,000 of that £90,000 back. If Bank A fails after 1 December, the new £120,000 limit will apply so Sally will get back her full £90,000.
If a fund manager goes bust
If your money is invested in a fund, and the firm that holds the assets for that fund goes under, this will also fall under the Financial Services Compensation Scheme if the firm is authorised by the FCA and you have under £85,000 with that company (or technically, the licence that company is under). However, it’s important to note that this is for the company as a whole, not the individual fund. So, if you invest in multiple funds within a single investment firm, you are protected for £85,000 across that firm, not per fund.
For example, if Sally decides to invest in a bond fund and an equity fund both managed by Asset Management Firm A, she will have £85,000 of protection across those two funds. But if she invested in her bond fund with Asset Management Firm A and her equity fund with FundCo B, she’d have £85,000 of protection with each of them.
This protection comes into place when the company goes under, not if the fund is closed. If a fund is closed but the fund management company is still operational, you should be informed and typically have the option to either take your money out or transfer it to another fund. If a fund simply doesn’t perform well, those losses are not covered and are part of the risks of investing.
What happens if a company I hold shares in goes under?
If you hold shares in a company and that company goes bust, this is where you will lose out on your money. This is the risk that comes along with an individual share. The FSCS does not apply to stocks and shares.
Do bonds work the same way?
When you purchase a bond, you are essentially giving a loan to a company, and they pay you back over time with interest.
If a company goes bust, there is a risk that they will not have the money to pay back that loan. But bonds are usually considered a little safer than equities, because if a company does have any money left to pay back its investors, they are required to pay out their bond holders before a lot of other stake holders, like someone who has equity in the company. They do, however, get paid after creditors because the company needs to pay its outstanding bills.
Let’s say Sally holds a bond with Fishing Frenzy Co., and her friend Lucille holds a share. If Fishing Frenzy Co goes under, any remaining cash the company has will first go to Sally to repay the loan. Lucille could end up with nothing, because Fishing Frenzy might run out of money trying to repay its loans to bond holders.
Note that this applies to individual bonds, not bond funds.
What if I hold an ETF?
Even though ETFs are traded like shares, they can come with more protections, because they are still a fund. What’s important to watch out for when investing an ETF is where it is domiciled (or based). Many ETFs are based in Ireland, Luxembourg, or another country. And since they are not in the UK, they aren’t under the same UK protections. In Luxembourg, the investment protection scheme only covers up to €20,000 per person per company. This can vary from country to country, and it can be a good thing to check to give yourself comfort.
Do investment trusts come with protection?
Investment trusts are different from funds because they are technically a company. That means the FSCS rules do not apply if a trust goes bust, aligning investment trusts with individual company shares.
But investment trusts put other rules in place to help provide protection. They have a board that is separate from the investment manager to determine if the trust is being managed properly. And as a shareholder, you have the right to vote on decisions for the trust.
There is the potential for an investment trust to be wound up before it goes bust. This means the investment trust would begin selling off its investments in the hope of returning some money to shareholders. You still may end up with less money than you initially invested, but it can prevent you from ending up with nothing at all.
Are there protections for pensions?
Depending on if you have a SIPP or a workplace pension, the protections are a little different.
If you have a SIPP through a UK-registered company, you will have the same protections from the FSCS. In the case of AJ Bell specifically, assets in the SIPP are held by a third party, which offers legal separation, although AJ Bell is still in charge of the SIPP.
If you have a workplace pension that is defined contribution, your money is also protected through the Financial Services Compensation scheme if the pension provider goes bust. If your workplace were to go bust, you would not lose your pension.
If you have a defined benefit pension and your employer goes bust, you can get help from the Pension Protection Fund. If your employer does not have enough money to fund the pensions it has promised, the Pension Protection Fund offers compensation to those that were part of the defined benefit scheme, usually covering 100% if you’ve reached the scheme’s pension age and 90% if you are below it.
Is there any protection for cash savings?
From 1 December 2025, you will be protected on up to £120,000 cash per bank or building society if this institution collapses. It’s important to note that some banks have the same parent company, and the protection only applies per license. For example, if you hold £100,000 with HSBC and £75,000 with First Direct, you would only be protected up to £120,000 across both providers as HSBC owns First Direct, and they are under the same license.
A different amount applies to short-term high balances, such as if you’ve just sold your home and suddenly have a large amount sitting in your bank. Qualifying temporary high balances currently have £1 million protection for up to six months, and this amount will rise to £1.4 million from December.
Hannah Williford: Content Writer
Hannah joined AJ Bell in 2025 as an investment writer. She was previously a journalist at Portfolio Adviser Magazine, reporting on multi-asset, fixed income and equity funds, as well as macroeconomic impacts and regulatory changes...
