Can you really invest with just £1?
26 Apr 2024
All investments involve risk and you could lose money.
Certain providers of investments are however covered by the Financial Services Compensation Scheme (FSCS) and the Financial Ombudsman Service (FOS). That means if they go bust, you could get your money back.
The FSCS can compensate you by up to £85,000 should a provider go bust. The FOS can force a firm to pay you up to £415,000.
However, to be eligible for assistance, you investments must meet certain criteria:
Financial Services Compensation Scheme | Financial Ombudsman Service |
---|---|
£85,000 limit per person, per provider | Up to £415,000 limit (depending on date of incident and complaint) |
Provider must be regulated by Financial Conduct Authority (FCA) | Provider must be regulated by FCA |
Investment must be regulated by FCA* | Provider is based in the UK |
Provider is based in the UK |
*You may still be able to claim if a financial adviser recommended the unregulated investment
Not many: neither the FSCS nor the FOS is designed to cover poor performance.
This can create confusing differences, as in this entirely hypothetical example:
If you invested using well-known investments platform Hargreaves Lansdown, and it went bust, you would be covered by the FSCS.
If you invested in Hargreaves Lansdown as a shareholder, and it went bust, you would not be covered. Nor would you be able to complain to the FOS, as there would no longer be a company to complain about.
You may be able to make an FOS complaint if you were sold an investment, that later performed poorly, without being made fully aware of the risks involved.
Always check a firm's status on the Financial Services Register - criminals can easily make a website display the FCA and FSCS logos, or convincing-looking numbers.
You can search the register by company name, person of interest, postcode or by using the unique firm reference number (FRN).
The register also includes firms that are under investigation, with prominent warnings.
Some types of popular investments aren't regulated by the FCA at all, and you'll get no compensation if you lose money with them.
Bear in mind that FCA-regulated firms can still sell unregulated investments.
If you put your money into them, you won't be covered by the FSCS, unless the investment was the result of negligent advice from an independent financial adviser.
Unregulated investments include:
If in doubt, don't invest. Do more research and consult the FCA's Warning List.
Also be aware that even regulated investments can be extremely high risk.
If you've lost money because of an authorised firm's dishonesty or negligence, normally, you'd seek compensation through the firm (using FOS if your complaint is not originally upheld).
But your chances of getting money from the firm evaporate if the firm goes out of business.
The fastest way to claim is to create an online account with the FSCS. You'll then need to upload any supporting documents, such as emails and statements. The FSCS says this process takes around 90 minutes.
It's also possible to claim by phone (0800 678 1100) or by post.
Before making a claim, also consider the following:
If you have a problem with a financial product, service or advice from a regulated firm, first complain to the firm involved. It must resolve your complaint within eight weeks.
If you have not had a response within this time or the complaint has not been upheld, you can take your case to the FOS.
The ombudsman can order a firm to put matters right and pay you compensation of £415,000 or more (this increases each year with inflation).
If you're unhappy with the ombudsman's verdict, you can bring a court case against the firm.
However, this can be a time-consuming and costly experience, whereas going to the FOS is free and requires no legal representation.