Are worries about bank failures keeping savers awake at night? This guide gives a clear, actionable comparator for people deciding whether to prioritise FSCS-protected ISAs or NS&I Premium Bonds when safety matters most. It shows how protection works in practice, compares likely real returns after inflation, explains access and tax differences, and provides practical tools and a checklist for moving money quickly and safely.
Key takeaways: what to know in 1 minute
- FSCS protects eligible savings up to £85,000 per person, per institution; ISAs held at banks/building societies are usually covered.
- NS&I Premium Bonds are backed by HM Treasury and are effectively government guaranteed, so capital is safe regardless of bank failures.
- Real returns differ: Cash ISA interest is predictable but may be low; Premium Bonds offer tax-free prizes with an implied prize rate but uncertain outcomes — inflation can erode both.
- Access and transfers vary: easy-access ISAs generally allow instant withdrawals, while Premium Bonds can be cashed within days but prize payments and transfers follow NS&I processes.
- Practical comparator: split exposure across FSCS-protected institutions, use NS&I for a zero-default option, and use a simple exposure calculator to check protected limits before moving funds.
Safe-place comparator: ISAs versus Premium Bonds after failures
How protection works after a bank failure
When a UK bank or building society fails, the Financial Services Compensation Scheme (FSCS) pays eligible customers up to £85,000 per person, per authorised firm (indicative at time of writing). For joint accounts the limit is generally £170,000. FSCS typically aims to make payments within 7–15 working days for straightforward claims but times can vary in complex cases. See the official guidance: FSCS: what is covered.
NS&I Premium Bonds are held with National Savings & Investments, which carries an explicit HM Treasury guarantee. That means the capital in Premium Bonds is protected by the UK government rather than FSCS; if a commercial bank fails, Premium Bonds are unaffected because they are not deposits with the failing bank. NS&I guidance: NS&I guarantee.
Practical steps if a bank fails (what happens to ISA money)
- FSCS assesses eligibility, then pays protected balances. For savings ISAs held at a failed bank, the FSCS pays the money up to the limit directly to the saver. Evidence and ID are required.
- If an ISA provider tries to transfer accounts, savers may be asked to approve a transfer to a healthy firm.
- Joint accounts and trusts have different rules — check FSCS definitions: FSCS eligibility.
How FSCS protection compares to NS&I guarantees
FSCS coverage: what's protected and limits
- Scope: FSCS covers deposits with UK-authorised banks, building societies and credit unions regulated by the FCA/PRA.
- Limit: £85,000 per eligible person, per authorised firm (current at time of writing). For joint accounts the limit is usually £170,000.
- Eligible products: cash ISAs, current accounts, savings accounts, and some other deposit products.
FSCS is compensation insurance; it applies after a failure and subject to eligibility checks. It is not a pre-emptive government guarantee of every deposit across all providers.
NS&I: Treasury backing and practical differences
- Backing: NS&I is backed by HM Treasury. Money held in Premium Bonds is a liability of the government.
- Practical implication: Premium Bonds provide an effectively default-free place to hold capital — there is no reliance on FSCS payout timelines.
- Limits: There is no equivalent statutory per-person cap on what the Treasury will honour for NS&I products; practical limits are set by NS&I rules (for Premium Bonds the holding limit is currently high: see NS&I limits page).
Real returns: interest, prizes and inflation impact
Comparing expected returns: cash ISA rates vs Premium Bonds prizes
- Cash ISAs pay interest, usually expressed as an annual percentage. This is predictable but can change with the provider’s terms (variable-rate accounts).
- Premium Bonds pay tax-free prizes in a monthly draw. NS&I publishes an "annual prize fund rate" which is an implied return measure but not a guaranteed yield; prizes are awarded randomly.
Example (indicative rates 2026): if a typical easy-access cash ISA pays 3.0% AER and Premium Bonds have an implied prize fund rate of 3.3%, the cash ISA gives steady returns while Premium Bonds give uncertain outcomes — some savers win large prizes, many win nothing. Use the NS&I prize statistics for probability calculations: NS&I prize rates.
Inflation and real return examples
Inflation reduces real purchasing power. If inflation is 4% and a cash ISA pays 3%, the real return is approximately -1%. Premium Bonds with an implied 3.3% prize fund rate also produce negative real returns at 4% inflation for the average saver. Over time, low nominal returns can erode capital in real terms regardless of FSCS or Treasury backing.
Real-return worked example (illustrative):
- £20,000 in cash ISA at 3.0% — nominal increase £600; after 4% inflation real change ≈ -£80.
- £20,000 in Premium Bonds at 3.3% implied — expected nominal increase ~£660 in prize expectation; individual outcomes vary widely.
Accessibility and liquidity: easy access ISA versus Bonds
Access speed and transfer process after a failure
- Easy-access ISA: withdrawals usually instant or same-day online. Transfers between providers can take 5–15 working days depending on processes.
- Premium Bonds: cashing in Premium Bonds typically takes a few working days once requested; prize payments are paid monthly and credited to the linked bank account or reinvested.
If a bank fails, FSCS payouts may be delayed while claims are processed. With Premium Bonds, NS&I remains operational and payments are not dependent on FSCS timetables.
What happens to prize funds and payouts during systemic events
NS&I prize draws continue under normal operation. In a systemic financial crisis, government action may influence markets, but the Treasury backing of NS&I is materially different from FSCS-style compensation which depends on the failed institution’s records and FSCS processes.
Tax-free benefits and savings allowances explained simply
ISA tax treatment
- Interest, dividends and capital gains inside an ISA are tax-free. There is an annual ISA subscription limit (current at time of writing: £20,000) which applies across Cash, Stocks & Shares, and other ISA types.
- ISAs do not affect eligibility for FSCS protection: the ISA wrapper is separate from the deposit protection rules.
Premium Bonds tax treatment and allowances
- Premium Bonds prizes are tax-free. The taxpayer does not declare prize winnings as taxable income.
- There is no ISA wrapper for Premium Bonds — they stand outside ISA allowances but provide tax-free prize payments.
Simple exposure calculator (how to check protected limits)
- List all banks/building societies where money is held.
- For each institution record the total balance per person (include joint accounts separately).
- Apply FSCS limits: mark balances above £85,000 as "unprotected".
- Consider moving excess into other authorised firms or into NS&I to remove counterparty risk.
A straightforward rule: never hold more than £85,000 per person with a single authorised firm if full FSCS protection is the objective. For joint holdings, divide by co-owners.
Checklist for moving money (fast actions if worried about exposure)
- Verify the provider’s FCA/PRA authorisation: FCA register.
- Confirm account classification (deposit vs investment, ISA wrapper) and FSCS eligibility.
- Use the exposure calculator and list which accounts exceed protection limits.
- If moving funds, use official transfer or withdrawal processes — keep documentation and screenshots.
- For large sums, consider splitting across multiple authorised institutions or moving surplus to NS&I Premium Bonds for government-backed capital.
| Feature |
Cash ISA (bank/building society) |
NS&I Premium Bonds |
| Capital protection |
FSCS up to £85,000 per person (eligible) |
Backed by HM Treasury (government guaranteed) |
| Return type |
Predictable interest (AER) |
Random monthly prizes (tax-free) |
| Liquidity |
Usually instant or same-day |
Cash-in within days; prizes monthly |
| Tax |
Tax-free within ISA wrapper |
Prizes tax-free (no ISA wrapper) |
| Best for |
Predictable short/medium-term holding with spread across providers |
Maximum certainty of capital safety with chance of tax-free prizes |
Safe place comparison at a glance
✅ FSCS-protected ISAs
Protection up to £85,000 per person per firm • Instant access options • Predictable interest
✅ NS&I Premium Bonds
Government-backed • Tax-free prizes • Ideal for removing counterparty risk
⚠️ When to split
If a single provider holds more than £85,000, consider splitting between authorised firms or using NS&I.
Advantages, risks and common mistakes
Frequently asked questions
Can FSCS protect ISA money if my bank collapses?
Yes. Eligible ISA deposits with an authorised UK firm are covered up to £85,000 per person, per firm. Check FSCS eligibility for specific account types. See FSCS: what is covered.
Are Premium Bonds safer than a bank ISA?
Premium Bonds are backed by HM Treasury, which removes bank counterparty risk. For capital safety alone, Premium Bonds are effectively safer than holding more than £85,000 in a single bank.
How quickly would FSCS pay out after a failure?
FSCS aims to pay straightforward deposit claims within 7–15 working days, but timing can vary. For specifics, consult FSCS guidance: FSCS.
Do prizes from Premium Bonds count as taxable income?
No. NS&I Premium Bonds prizes are tax-free and do not need to be declared as income.
Can splitting accounts avoid FSCS limits?
Splitting balances across separately authorised firms preserves FSCS protection, but splitting across brands within the same legal entity does not increase protection. Always confirm the authorised firm name on the FCA register: FCA register.
Check exposures against FSCS limits, document balances and account details, and consider moving sums above protection limits to additional authorised firms or to NS&I Premium Bonds.
Conclusion
Your next step:
- Use the exposure checklist to list balances and compare them to FSCS limits (start with the largest accounts).
- If any single authorised firm holds more than £85,000 for an individual, arrange transfers to another authorised firm or NS&I to reduce counterparty concentration.
- Keep records of all transfers and confirmations, and bookmark the FSCS and NS&I pages for reference.
Sources and further reading: Financial Services Compensation Scheme (FSCS) and National Savings & Investments (NS&I) official guidance cited above.