Do money apps have FSCS protection? How the likes of Plum, Moneybox and Trading 212 protect your cash

Seeking the highest interest rates on cash ISAs? Many top offers currently originate from a fresh wave of app-based savings providers.

Firms such as Plum, CMC Invest, Moneybox, and Trading 212 are presenting rates exceeding 4.9 percent.

These ISAs boast attention-grabbing rates, although some are introductory ‘bonus’ offers with limited durations, typically around three months.

Several accounts permit unrestricted withdrawals, granting customers the flexibility to easily transfer to alternative accounts.

Certain ISAs also provide the advantage of flexibility, allowing withdrawals and replacements within the same tax year without affecting the annual ISA allowance.

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However, individuals drawn to these deals must consider a crucial element often overshadowed by high-rate appeals: Financial Services Compensation Scheme (FSCS) protection.

Understanding FSCS Protection

FSCS protection furnishes savers with a degree of financial security if their provider encounters insolvency.

If the institution holding your funds is FSCS protected and regulated by the Financial Conduct Authority (FCA), eligible savers are entitled to recover some or all of their deposits, subject to specific conditions.

The FSCS safeguards deposits up to £85,000 per individual saver, per licensed banking entity.

Discussions are underway regarding a potential increase in the FSCS protection limit to £110,000, possibly starting in December, pending approval of proposals from the Prudential Regulation Authority.

It’s important to note that some app-based ISA providers are not licensed banks and therefore do not possess independent FSCS cover akin to traditional high street banks.

Nevertheless, customer funds are typically still protected, as detailed below.

How App-Based Providers Secure Your Funds

These providers leverage the FSCS protection of established banks and financial institutions by segregating customer funds into separate, ring-fenced accounts.

Among the leading ISA providers featured in rate tables, five are app-centric, employing this ring-fencing strategy to safeguard customer deposits with partner banks and financial firms.

For instance, funds within Plum‘s ISA*, offering a 5.68 percent rate (including a 2.14 percent bonus), are deposited with CitiBank, Lloyds, and QNB in segregated accounts, distinct from these banks’ primary operations. In the event of a failure of one of these institutions, your deposits would be protected up to £85,000.

Trading 212*, currently offering 4.9 percent (inclusive of a 0.4 percent bonus), deposits funds with Barclays, NatWest, JPMorgan, Lloyds, and BNY Bank. Customers can view the distribution of their ISA savings across these banks via the Trading 212 app.

Moneybox, providing a 5.71 percent rate (including a 1.51 percent bonus), utilizes up to ten partner banks for FSCS protected deposits. These include Clydesdale Bank, HSBC, Santander UK, Barclays, First Abu Dhabi Bank, Qatar National Bank, NatWest, Bank of Scotland, Lloyds, and The Bank of New York Mellon, London Branch.

Moneybox ensures that no more than 50 percent of total customer funds are held with a single banking partner at any given time.

Therefore, with a £20,000 ISA balance at Moneybox, a maximum of £10,000 would be allocated to Santander, with the remaining £10,000 distributed among HSBC or other partner banks.

Chip*, offering a 4.32 percent rate, utilizes ClearBank, a UK-licensed bank, for its ISA deposits. Should ClearBank or Chip encounter financial difficulties, customer ISA deposits are protected up to the £85,000 limit.

CMC Invest*, presenting a 5.7 percent rate, is a relatively recent entrant to the cash ISA market, having introduced an easy-access cash ISA in early December 2024.

Funds held within CMC Invest’s easy-access cash ISA benefit from Financial Services Compensation Scheme protection.

Although not a bank, CMC Invest is authorized and regulated by the Financial Conduct Authority to accept ISA deposits.

It relies on the FSCS protection offered by NatWest and ‘Qualifying Money Market Funds’ to safeguard customer ISA deposits up to £85,000 in the event of insolvency.

James Blower, founder of Savings Guru, notes that the use of Money Market Funds for protection is not unprecedented.

He explains, ‘Money Market Funds can be FSCS protected, provided they adhere to stringent criteria.’

‘Consequently, assuming CMC’s funds comply, savers should remain confident, but must still observe the £85,000 scheme limit.’

Importance of Monitoring Your Savings Locations

Determining the precise allocation of your funds across partner banks may sometimes be challenging, as providers might not always offer detailed breakdowns.

However, understanding where your savings are held is crucial, especially if you maintain substantial cash savings.

This awareness is vital because pre-existing deposits held directly with a partner bank could inadvertently lead to exceeding the £85,000 FSCS protection limit if that bank were to fail.

James Blower emphasizes, ‘The concern with certain providers is their utilization of multiple banks without clear disclosure of which bank holds your funds.’

For example, an individual might hold £80,000 directly with a specific bank and subsequently deposit £20,000 into an ISA with a provider using the same bank for FSCS compensation, resulting in a combined total of £100,000.

In such a scenario, £15,000 could potentially be at risk should the bank encounter financial failure.

This is because, in the unlikely event of a failure within a partner bank used for FSCS protection, compensation is capped at £85,000 per banking license. Joint account holders are protected up to £170,000.

Therefore, individuals should avoid holding more than £85,000 with any single banking or building society license.

However, it’s noted that less than 10 percent of savers hold balances exceeding £85,000.

Consequently, Blower suggests, ‘This is not a widespread concern for most savers.’

He cautions, ‘Nevertheless, it presents a tangible risk, particularly given the novelty and limited financial transparency of numerous non-bank providers, making it difficult to assess their long-term viability.’

‘The top three ISA providers are currently offering rates significantly above the base rate and are not engaged in lending activities, implying potential losses on their savings operations.’

‘The likely rationale is to generate revenue from associated investment products or to secure long-term profitability once bonus rates diminish and customer retention improves.’

‘However, this approach inherently introduces greater risk compared to traditional licensed banks.’