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

If you have a keen eye on the best-buy cash Isa tables, you will see most of the top rates at the moment are offered by a new wave of app-based savings providers.

These include the likes of Plum, CMC Invest, Moneybox and Trading 212, to name a few.

The Isas offer headline-grabbing rates - though some of them are 'bonus' deals which only last three months.

Several have no restrictions on how many times you can withdraw money from them, meaning customers can switch to a different account with ease.

Some even have the added benefit of being flexible Isas, which means money can be withdrawn and replaced without any of the Isa allowance being used up – so long as it is replaced within the same tax year.

But savers flocking to these deals should be aware of another important factor when it comes to choosing an Isa, that shouldn't be overlooked for all the flashier appeals – and that is Financial Services Compensation Scheme (FSCS) protection.

FSCS protection offers savers some security if their provider goes under.

If the bank holding your cash is covered by the FSCS, and authorised by the Financial Conduct Authority (FCA), you should get some or all of your savings back - so long as you meet certain conditions.

This is because the FSCS protects savings accounts up to £85,000 per individually licensed bank, per saver.

There are murmurs that the FSCS limit could increase to £110,000 from December if proposals by the Prudential Regulation Authority are given the green light.

Some money apps which offer Isas are not licensed banks, and therefore do not have their own FSCS cover, as a high street bank would.

However, savers are usually still protected - as we explain below.

These providers use the FSCS cover of other banks and financial institutions by ringfencing money in separate accounts with them.

Of the Isa providers at the top of the Isa tables, five are app-based providers which ringfence Isa deposits with other banks and financial firms to protect customers' cash.

For example, money held in Plum's Isa is deposited with CitiBank, Lloyds and QNB in segregated accounts, away from these banks' other operations. If one of these firms were to fail, your money would be protected up to £85,000.

Trading 212 keeps deposits with Barclays, NatWest, JPMorgan, Lloyds and BNY Bank. You can see what proportion of your Isa savings are kept with each bank in Trading 212's app.

Moneybox currently uses up to 10 partner banks for FSCS deposits, including 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.

It doesn't hold more than 50 per cent of the total funds with a single bank at any given moment.

So if you were to have an Isa worth £20,000 with Moneybox, only a maximum of £10,000 would be held with Santander and the other £10,000 with HSBC, or any combination of the other banks it uses.

Chip uses ClearBank, which is a licenced bank in the UK, for its Isa deposits. If ClearBank or Chip were to fail, customers Isa deposits would be protected up to £85,000.

CMC Invest is a newer player in the cash Isa space, having launched an easy-access cash Isa at the start of December 2024.

Money kept in CMC Invest's easy-access cash Isa is protected under the Financial Services Compensation Scheme.

CMC Invest is not a bank but it is authorised and regulated by the Financial Conduct Authority to take Isa deposits.

It leans on the FSCS cover of NatWest and 'Qualifying Money Market Funds' to protect customer deposits in its Isa up to £85,000 if it goes bust.

It is not a completely new phenomenon for firms to use Money Market Funds, says James Blower the founder of website Savings Guru.

He says: 'Money Market Funds can be FSCS protected but have to meet strict criteria in order to do so.

'Therefore, as long as CMC's is, savers shouldn't have to worry but should definitely stay within the scheme limits of £85,000.'

Sometimes it is hard to know exactly how much of your money is being held with each of the banks your Isa provider partners with, as the firm may not give a specific breakdown.

But it is important to know where your money is being held - especially if you have a lot of cash in savings.

This is because you might already have cash with another bank, which could lead you to inadvertently breach the £85,000 limit if that bank went bust.

James Blower says: 'The issue with some of these providers is that they are using multiple [banks] and you don't know which bank your money is with.'

Read More

For example, someone might hold £80,000 in savings with a bank directly, and then put £20,000 in an Isa with a firm which uses the same bank for its FSCS compensation - combined total of £100,000.

In this case, £15,000 could potentially be at risk if the bank were to fail.

That's because in the unlikely event one of the firms your savings provider keeps deposits with for the purpose of FSCS protection fails, you will only get back savings worth up to £85,000 per bank. If you have a joint account, you're covered up to £170,000.

This means that you shouldn't hold more than £85,000 individually with each bank or building society.

However, the number of savers with savings over £85,000 is less than 10 per cent of the market.

For this reason, Blower says: 'This isn't an issue for the vast majority of savers.

'But it is a real risk because many non-bank providers are new with little or no financial information available on them, and their status so it is hard to know if they are viable.'

'The top three Isa providers are all paying significantly over the base rate, and do not lend money out, which means they are losing money on the savings activity.

'I expect the justification for this is that, firstly, they are making money from investments that they also sell or secondly, they are making money in the longer term when their bonuses drop off and enough customers stay with them to make it pay.

'But this makes them far riskier than licensed banks.'