Is Your Money Safe in an E-Money Account?

Somewhere in the terms and conditions of pretty much every fintech account, there's a sentence that makes people sit up: this account is not covered by the Financial Services Compensation Scheme.

Read that at 11pm with your rent money sitting in the account, and it's a genuinely unsettling sentence.

It's also true, but it’s not the disaster it sounds like, once you know what it means.

Accounts like this are called e-money accounts, and the company behind them is an e-money institution, or EMI, not a bank. It's a different kind of regulated business, with its own rulebook, and understanding that rulebook is really the whole answer to is my money safe?

Why banks need a safety net at all

Banks work by lending most of what you deposit back out again, into other people's mortgages, business loans, whatever else. Your £10,000 doesn't sit in a vault somewhere with your name on it. Most of it is out in the world, working, earning the bank interest.

That's useful for an economy, and it's also the whole reason FSCS exists. If everyone tried to withdraw their money from a bank on the same day, the bank wouldn't have it all sitting there to hand back, because it isn't sitting there. It's out on loan.

If a bank collapses and can't get enough of that lent-out money back quickly enough, the FSCS scheme steps in and covers you, up to £120,000 per person, per institution.

Why e-money doesn't need the same net

E-money institutions aren't allowed to lend your money out in the first place.

By law, the money in your account has to sit untouched, and the most common way it’s done looks like this:

One option is a separate account at an actual bank, held purely for safeguarding, completely apart from the EMI's own operating funds. The other option is investing it in secure, liquid, low-risk assets, held with an authorised custodian rather than the EMI itself.

Either way, the EMI can't touch it, lend it, or use it for anything else.

This is called safeguarding, and it comes from the Electronic Money Regulations 2011. It works on a different principle to FSCS entirely: instead of insuring you after something goes wrong, it stops your money from being at risk in the first place.

How to check this yourself

That's not worth much if you're just taking a company's word for it. Here's what to check:

• Every legitimate EMI in the UK has to be authorised or registered with the FCA
• Safeguarding arrangements somewhere in their terms, usually in plain enough language that you don't need a law degree to follow it.

What happens if the EMI itself goes under

The short answer is that your money should come back to you before the company's other debts get paid, because it was never really the company's money to begin with, it was always yours, just held on your behalf.

It's not necessarily instant, insolvency takes time to sort out properly. But it isn't sitting in the same pile as the company's own cash, up for grabs along with everything else.

The upside nobody mentions

FSCS protection is capped at £120,000. Hold more than that in a single bank account, and anything above the cap has no protection at all if the bank fails.

Safeguarding doesn't work like insurance with a ceiling. There's no cap, because it isn't compensation, it's your own money being held separately, and the rules require all of it to be there. For a business holding a larger working balance, that's arguably the more reassuring arrangement of the two, even though it sounds less familiar.

Ampere fits this same pattern, and says as much on its own site. Funds are safeguarded by a regulated financial institution, held in segregated accounts under the Electronic Money Regulations 2011, the same setup described above.

The FSCS sentence in the terms and conditions might still make you pause the first time you read it late at night. That's fair enough, but now you know what's sitting behind it.