Many investors assume a government-backed safety net sits under every account that holds money. This article explains what the best-known schemes in the United States and the United Kingdom actually protect, what they explicitly leave out, and why the answer depends on where an account is held and what it contains.
Protection against failure is not protection against loss
Two different risks sit inside any investment account. The first is market risk: the value of a stock, bond or fund falls. The second is custody or institutional risk: the bank, broker or adviser holding the money or assets fails, or is unable to return them.
Protection schemes address the second risk, and only in defined circumstances. None of the schemes discussed here promises that an investment will hold its value. The distinction matters because the language around “insured” and “protected” accounts is easy to read as something broader than it is.
What does the FDIC actually insure in the United States?
According to the Federal Deposit Insurance Corporation (FDIC), deposits are automatically insured to at least $250,000 at each FDIC-insured bank. The FDIC describes this as protection in the event of a bank failure, and says it insures only money held in a deposit account at an insured bank.
The FDIC’s own list of products it does not insure is the part most relevant to investors. It names:
- mutual funds
- annuities
- life insurance policies
- stocks and bonds
- crypto assets
- municipal securities
- safe deposit box contents
So a savings account at an insured bank and a mutual fund bought through that same bank’s app can sit side by side on a screen while receiving entirely different treatment. The first is a deposit. The second is an investment whose value can fall, and which falls outside FDIC insurance. For a closer look at how the $250,000 amount applies across different account ownership types, see our guide to FDIC ownership categories.
The FDIC covers the US deposit side only. Protection for assets held at a US brokerage firm works through a separate arrangement for broker-dealers rather than through the FDIC, and this article does not describe its limits.
What does the UK’s FSCS cover for investments?
In the United Kingdom, the Financial Services Compensation Scheme (FSCS) is the statutory compensation scheme for customers of authorized financial firms. According to the FSCS, it can pay compensation when an investment provider or adviser goes out of business and there is a shortfall in the money or assets it was holding for the customer.
The FSCS sets out several conditions:
- The firm must be authorized by the Prudential Regulation Authority (PRA) or the Financial Conduct Authority (FCA).
- The service and the product must themselves be regulated.
- For claims about bad advice, the advice must have been given on or after 28 August 1988.
The FSCS limit for investments is stated as up to £85,000 per eligible person, per firm, for firms that failed after 1 April 2019. The FSCS page also lists earlier limits that apply to older failures: up to £50,000 for firms that failed between 1 January 2010 and 31 March 2019, and for failures before 1 January 2010, 100% of the first £30,000 and 90% of the next £20,000, up to £48,000.
What the UK scheme explicitly excludes
The FSCS states plainly that it cannot accept claims for poor investment performance, and that investments can go down as well as up. A portfolio that has lost value because markets fell is not a protected event, even if it was held with a fully authorized firm.
The scheme is also not a blanket guarantee for every product. According to the FSCS, protection varies by product type, and some investment products are not protected at all. Checking whether a specific product and provider are in scope before relying on protection is the sound approach, because eligibility depends on the firm, the regulated activity and the date of failure.
A worked example: how the per-firm limit can bite
The arithmetic below is illustrative only and uses the UK limit of £85,000 per eligible person, per firm for failures after 1 April 2019. It assumes the full amount is an eligible claim, which in practice depends on the facts of a failure.
| Scenario | Held with firm A | Held with firm B | Eligible claim at A | Possible compensation | Above the limit |
|---|---|---|---|---|---|
| One firm | £110,000 | £0 | £110,000 | £85,000 | £25,000 |
| Split across two firms | £60,000 | £50,000 | £60,000 if A fails | £60,000 | £0 |
In the first row, the shortfall is capped at £85,000, leaving £25,000 (£110,000 minus £85,000) above the limit. In the second row, each firm holds less than the limit, so a failure at either one would leave nothing above the cap, on these assumptions.
The limit applies per person, per firm, so the number of accounts held with a single firm does not multiply the protection. That is a structural reason some investors spread assets across providers. It is also a trade-off: more providers means more accounts to monitor, and it does nothing to reduce market risk. For that, the relevant concept is diversification across holdings, which is a separate matter from diversifying across institutions.
Why does the distinction between deposits and investments matter?
Cash-like products blur the line. A bank deposit, a cash balance held inside a brokerage account, and a money market fund can all look similar on a statement while being treated differently by the schemes above. The FDIC’s list is explicit that mutual funds are not insured by it, which covers money market funds structured as mutual funds. Our comparison of money market funds and bank deposits sets out how the two differ in risk and in protection.
The practical consequence is that “it is with a well-known institution” and “it is protected” are two separate statements. The first describes a brand. The second describes a legal scheme with a defined scope, limit and set of conditions.
Costs and protection are different questions
Protection schemes are funded and operated within each country’s regulatory framework, and they do not substitute for judging an investment itself. A product can sit inside a protected structure and still carry high charges or poor value. As the long-run effect of fees shows, ongoing costs can erode returns steadily, and no compensation scheme addresses that.
Nor do these schemes make up for concentrated risk. An investor holding one stock inside a protected account still bears the full risk of that stock. The scheme’s job begins only if the firm holding the account fails.
A short checklist for reading protection claims
Questions worth asking about any account, in either country:
- Is the money a deposit at an insured bank, or an investment held through a firm?
- Which country’s scheme applies, and is the firm authorized or insured under it?
- What is the limit, and does it apply per person, per firm or per account type?
- Which products inside the account are excluded?
- Does the protection depend on the date a firm failed, as with the FSCS tiers above?
None of these questions require predicting anything about markets. They simply establish what a scheme would do if a firm failed, which is a narrow but real part of an investor’s risk picture.
Protection covers the institution, not the outcome
Deposit insurance and investor compensation exist to deal with failures of firms and banks, within limits and conditions that differ by country. The FDIC in the United States insures deposits, not stocks, bonds or mutual funds. The FSCS in the United Kingdom can compensate for a shortfall when an authorized firm fails, up to £85,000 per eligible person, per firm for recent failures, but not for poor performance. Neither removes market risk, and neither makes a poor investment sound. Knowing the boundary helps investors judge what a label like “protected” really means in their own jurisdiction.
This article is general information, not personalized financial advice. Rules, limits and rates change and differ by country; check current rules with the relevant scheme or a qualified professional.
Sources: Federal Deposit Insurance Corporation; Financial Services Compensation Scheme
