Is cash in an offshore bond protected by the FSCS?

Cash held inside an offshore bond is not protected by the Financial Services Compensation Scheme. The FSCS covers deposits, insurance, investments, pensions and mortgage advice when a UK-authorised firm fails, but an offshore bond is issued by a company authorised outside the UK, usually in the Isle of Man or another low-tax jurisdiction, and the FCA usually does not regulate savings held offshore¹.

That does not mean there is no protection at all. An offshore bond is a life insurance policy, and life companies in the Isle of Man fall under the Isle of Man Compensation of Policyholders scheme. Nucleus, which issues an Offshore Bond, states plainly that cash held in it is not covered by FSCS protection because the product falls under that Isle of Man scheme³. Standard Life makes the same point about its International Bond: it is not protected by the UK Financial Services Compensation Scheme⁴.

The practical effect is that if the offshore bond provider fails, your claim goes to the offshore scheme, not to the FSCS. The two schemes have different rules, different limits and different claim processes, and the FSCS cannot step in for a firm it does not cover.

Offshore bonds sit outside the FSCS

An offshore bond is a life insurance policy issued by a company based outside the UK, typically in the Isle of Man, Jersey, Guernsey or Ireland. The policy holds investments, and the cash within it is part of the policy rather than a deposit with a UK bank. That distinction matters because the FSCS protects deposits held with UK-authorised banks and building societies, and it protects insurance policies issued by UK-authorised insurers. An offshore bond sits outside both.

Transact, which issues both onshore and offshore bonds, sets out the boundary in its client asset protection document. Money held by its investment arm for onshore bonds and money held for offshore bonds is excluded from the FSCS cover that applies to other client money⁹. The exclusion is not a technicality: it reflects the fact that the offshore bond is issued by a company the UK scheme does not authorise.

The FSCS itself is clear that it can only protect money held by UK branches of authorised banks and building societies¹⁰. It also cannot protect e-money or payment services firms, and it does not cover most cryptoassets because they are not regulated¹⁰. Offshore savings sit in the same category of things the UK scheme does not reach.

For a reader, the question to ask is not whether the bond is "safe" in a general sense but which compensation scheme stands behind it. The provider's key features document should say. If it does not, the provider can be asked directly.

What the FSCS protects

The FSCS covers a range of financial products when a UK-authorised firm fails: deposits, insurance, investments, pensions, mortgage advice and certain other regulated services¹. The limits differ by product, and the scheme pays automatically for deposits, without a claim form in most cases.

For deposits, the limit is £120,000 per person, per authorised firm, or £240,000 for joint accounts⁵. That covers current accounts, savings accounts, cash ISAs and savings bonds held with UK-regulated banks, building societies and credit unions¹⁴. Joint fixed rate bonds give each named person their own protection¹⁵. Building societies and credit unions apply the same limit: Yorkshire Building Society states the scheme protects up to £120,000 of eligible deposits, and Serve and Protect Credit Union confirms its savings are FSCS-protected¹⁶.

For investments, the FSCS protects up to £85,000 per person, per authorised firm, when a regulated investment company goes bust⁶. That covers claims against UK-authorised investment firms, not the underlying funds or the offshore policy itself. For insurance, the scheme pays 100% of whole of life assurance claims and 90% of certain other claims such as public liability and warranty¹².

The FSCS also protects pension advice, so it can pay compensation if an adviser fails after giving bad pension advice⁷. It has protected investment claims, including mortgage endowment policy recommendations by a financial adviser, since 28 August 1988⁸. Mortgage advice itself is covered¹³.

Where FSCS protection does not apply to your savings

The FSCS only applies to accounts with UK banks and certain other deposit takers that have opted into the scheme. Banks located outside the UK are not covered¹⁹. That single rule explains most of the gaps a saver is likely to meet.

Savings held offshore that the FCA usually does not regulate, for example in the Isle of Man or outside Europe, are unlikely to be covered². Offshore funds, meaning non-UK domiciled funds, are not covered either, and there is no compensation for poor investment performance due to market conditions²⁰. If a deposit account is based offshore, there is no compensation available from the FSCS⁴.

The gaps extend to products that look like bank accounts but are not:

• E-money and payment services firms. Outside the scheme¹⁰. Premier Payment Solutions Ltd entered liquidation, and the FCA confirmed that the FSCS does not cover payment services²¹.
• Prepaid cards. Not covered if the provider goes bust, and prepaid foreign currency cards are not protected either²².
• Virtual current accounts run under e-money rules. Your money is kept safe at a different bank, but if the provider failed you would need to make a claim to the administrator rather than to the FSCS²⁴.

There is one nuance worth knowing. The FSCS may protect safeguarded funds held by e-money providers if the bank holding those funds were to fail²⁵. That is protection of the underlying bank, not of the e-money firm. For app-based savings, the FSCS has said protection depends on the contractual arrangements between the provider and its partner banks²⁶.

After Brexit, the position for UK customers with UK-authorised banks is unchanged: the FSCS still protects your money²⁷. What changed is that a UK citizen based in the EEA, banking with an EEA branch of a UK firm, is no longer protected by the FSCS where an EEA scheme has taken over²⁸.

FSCS or offshore scheme: how the two compare

The FSCS is the UK's deposit guarantee scheme for customers of UK-authorised financial services firms. It can pay compensation if a building society is not able to meet its financial obligations²⁹. The Isle of Man Compensation of Policyholders scheme does the equivalent job for life companies authorised on the island, and it is the scheme that applies to an Isle of Man offshore bond³.

The two schemes are not interchangeable. A claim that would be straightforward under the FSCS, such as a deposit claim paid automatically, may follow a different process under an offshore scheme. The limits are set separately, and the FSCS has no role in a claim against a firm it does not authorise.

Where a UK bank and an offshore provider are both involved, the protection can split. Virgin Money and Nationwide, for example, had separate protection before their transfer and combined protection across both afterwards³⁰. That kind of arrangement is about UK-authorised firms sharing a licence, and it does not extend to an offshore bond.

What happens if an offshore bond provider fails

If an offshore bond provider fails, the FSCS does not pay. The claim goes to the compensation scheme of the jurisdiction where the provider is authorised. For an Isle of Man life company, that is the Isle of Man Compensation of Policyholders scheme³.

The FSCS sets out the questions a consumer should ask before buying any investment product: whether the product is covered by the FSCS, how much of your money is protected, and what would happen to your money if the provider's business failed³¹. Those questions are the practical test. If the answer to the first is no, the protection comes from somewhere else, and the reader needs to know where.

There is a second layer of risk inside an offshore bond. Standard Life states that no FSCS compensation would be available to investors in a life product such as a bond if an external company running insured funds, mutual funds or deposits failed⁴. Transact makes the same point about its onshore bond: if any of the fund managers, banks or investment companies it has invested premiums with become insolvent, no FSCS compensation is available and the loss is borne by the bondholder³². The bond wrapper does not insulate you from the failure of the underlying investments.

If a UK adviser recommended the offshore bond and the advice was bad, the position is different. The FSCS protects pension advice and certain investment advice given by UK-authorised advisers, so a claim can be made against the adviser's firm if it has failed⁷. The FSCS may compensate up to £85,000 where an advising firm is no longer in business and it determines you have suffered a financial loss³³. That is a claim about the advice, not about the bond provider.

Checking which compensation scheme covers your bond

The starting point is the provider's key features document, which should state which compensation scheme applies. If it does not, ask the provider directly. The FSCS suggests asking whether the product is covered, how much of your money is protected, and what would happen to your money if the provider's business failed³¹.

You can also check the FCA Register to see whether a firm is authorised in the UK³⁴. A firm that does not appear is not covered by the FSCS, and the FCA warns that you will not be protected by the FSCS if an unauthorised firm goes out of business, so it is unlikely you would get your money back³⁴.

For a UK-authorised provider, the FSCS check tool confirms whether your money is protected³⁵. For an offshore provider, the equivalent check is with the regulator in that jurisdiction. The FSCS cannot confirm cover for a firm it does not authorise.

If you are unsure whether a product is a deposit or an investment, the distinction matters. Money in a NatWest Invest ISA cash account is treated as a deposit and covered by the same FSCS protection as savings and current accounts³⁶. Money in an offshore bond is not a deposit and does not attract that protection³.

If a firm has failed and you are not sure whether the FSCS can help, the scheme's own guidance sets out what it can and cannot do¹⁰. For free, impartial help with a financial decision, MoneyHelper is available²⁴. If you have a complaint about how a product was sold, the Financial Ombudsman Service can look at it, and the FSCS and the ombudsman do different jobs: the ombudsman resolves disputes, while the FSCS pays compensation when a firm cannot¹⁸.