Business cash tends to arrive in one place and stay there. The VAT you have collected and not yet paid, the corporation tax building up for a bill nine months after the year end, the buffer you promised yourself you would keep — all of it usually sits in the same current account, earning nothing, until something makes you look at it.
Two questions are worth answering before something does. How much of that money is actually protected if the bank fails, and is any of it working while it waits?
What the protection actually is
The Financial Services Compensation Scheme protects eligible deposits held with a UK-authorised bank, building society or credit union. Since 1 December 2025 the limit has been £120,000 per eligible depositor, per authorised firm — up from £85,000, which had stood since January 2017.
Two words in that sentence do the work. Eligible, and per authorised firm. It is not per account, and it is not per brand: banking brands that sit under the same authorisation share a single limit between them. Spreading £200,000 across two names that turn out to share one licence protects nothing at all. The FSCS publishes which brands sit under which authorisation, and checking takes about a minute.
A limited company gets its own £120,000. A sole trader does not.
This is the distinction most owners have never been told, and it is the one that changes what you should do.
If your business is a separate legal entity — a limited company or an LLP — the business can claim up to £120,000 for its business account, and you can separately claim up to £120,000 for your personal accounts at the same bank. Two depositors, two limits.
If you trade as a sole trader, you and the business are the same legal person. Your business and personal accounts are aggregated, and you can claim up to £120,000 in total across both.
Put figures on it. A sole trader holding £70,000 in the business account for a looming VAT and tax bill, plus £60,000 of personal savings at the same bank, has £130,000 with one institution and £10,000 of it outside protection. The identical person trading through a limited company has two separate £120,000 limits and the whole lot covered. That is not a reason on its own to incorporate — going limited changes less than people expect — but it is a good reason to think about which bank the personal savings live at.
Protection is per authorised firm, not per account. Two accounts at one bank is one limit. Two brands sharing one banking licence is also one limit.
Most companies are covered. A few are not.
There is no size test for companies: FSCS protects company deposits regardless of how big the company is. The main exclusion that catches trading businesses is that most types of regulated financial services firm are not eligible. If you are an authorised firm yourself, check rather than assume — and if you hold client money, check what protection sits behind that too, because it may not work the way you imagine.
Idle cash has a cost as well as a risk
The other half of the question is what the money earns while it waits. With the Bank of England base rate at 3.75%, held again on 30 July 2026, cash in a 0% current account is losing real value while it sits there doing a job it could do just as well somewhere that pays interest.
The arithmetic is small but free. £40,000 held for six months at 3% earns roughly £600 gross. Company interest is taxable income, added to profits, with no equivalent of the personal savings allowance — so at the 19% small profits rate that £600 is worth about £486 after tax, and at the 25% main rate about £450. Nobody retires on it. But it is £450 for a transfer between two accounts at the same bank, which is a better hourly rate than most things on your list.
Let the money's job pick the account
The useful way to organise it is by when you need the money back, not by how much interest is on offer.
Money that belongs to HMRC and has a date on it — VAT, PAYE, the corporation tax provision — needs to be available on that date without fail, so instant access matters more than the rate. Money you will not need for six months can sit in a notice account for more. A genuine emergency buffer needs to be reachable the same day, which rules out anything with a notice period, however good the headline rate.
One caution. Some products marketed to businesses as savings are not deposits with a UK-authorised bank at all — they are funds or platform arrangements with a different risk profile and different protection. Before you move working capital anywhere, establish who is actually holding the money and what happens if they fail. The bank that closes a business account with 90 days' notice is a reminder that where your money sits is an operational decision, not just a financial one.
What to do this week
Write down every account the business holds, the balance in each, and which bank actually holds it — including any brand that might share a licence with another on your list. Most owners have never seen this on one page.
If any single institution holds more than £120,000 of company money, decide whether that is a choice you are making or an accident you have drifted into. Both are legitimate answers; drifting is not.
If you are a sole trader, add your personal savings at the same bank to that total, because the scheme will.
And check what rate the tax money is earning. If the answer is nothing, and it is nothing for nine months of every year, that is a phone call to your bank rather than a project — and it beats getting to January and needing a Time to Pay arrangement because the money was spent. Setting the tax aside where it earns something is the practical version of the point behind cash flow versus profit.
Common questions
How much of my business bank balance is protected if the bank fails?
Up to £120,000 per eligible depositor, per authorised firm. The limit rose from £85,000 on 1 December 2025. It applies to eligible deposits held with a UK-authorised bank, building society or credit union, and it is calculated per authorised firm rather than per account — so two accounts at the same bank share one limit. Banking brands that operate under the same authorisation also share a single limit between them, which is why spreading money across two names is only protection if they hold separate authorisations. The FSCS publishes which brands sit under which licence.
Does a limited company get separate FSCS protection from its director?
Yes. A limited company or LLP is a separate legal entity, so the business can claim up to £120,000 in respect of its business account and the director can separately claim up to £120,000 in respect of personal accounts at the same bank. Sole traders are treated differently: because the individual and the business are the same legal person, business and personal accounts at the same bank are aggregated and share a single £120,000 limit. A sole trader with £70,000 in the business account and £60,000 in personal savings at one bank therefore has £10,000 outside protection.
Are all businesses covered by FSCS deposit protection?
Most are. There is no size test for companies — FSCS protects company deposits regardless of turnover or headcount, so a large trading business is covered on the same basis as a small one. The main exclusion affecting businesses is that most types of regulated financial services firm are not eligible depositors. If your business is itself FCA or PRA authorised, check your position rather than assuming, and check separately what protection applies to any client money you hold, since that can work differently from your own deposits.
Is interest on a business savings account taxable?
Yes. Interest earned by a company is taxable income and forms part of the profits assessed to corporation tax. There is no company equivalent of the personal savings allowance, so the whole amount is taxed. At the 19% small profits rate, £600 of gross interest is worth about £486; at the 25% main rate it is worth about £450, with marginal relief applying between the £50,000 and £250,000 profit thresholds. For a sole trader, interest on business savings is taxed through Self Assessment as part of your income rather than through corporation tax.
