Financial wellness
Telling your bank about your compensation payment
Large or unusual payments could raise a red flag for your bank to investigate. This is done to confirm the source of the payment and to prevent financial crimes.
Your compensation payment can only be paid into a current account or a savings account. It cannot be paid into a cash ISA or a stocks and shares ISA. If your payment is flagged, your account might be temporarily frozen and there could be a delay in getting access to your money.
You can stop this from happening by telling your bank about your compensation payment before you receive it.
Your bank has a limit on how much money you can take out at any one time. You can ask your bank to confirm your daily, weekly, monthly or annual withdrawal limit.
Banking options
You can choose to keep your compensation payment in different types of accounts.
Current account
A current account is an account you use for money you need right away. You have full access to all of the money in your current account at any time. Most current accounts do not pay interest, so your money will not grow in value.
Savings account
A savings account is an account you use to save your money in. A savings account is usually for money you don’t need right away. A savings account will usually pay interest on any money in the account. There may be tax to pay on the interest if it exceeds the annual allowance.
High-yield savings account
A high-yield savings account is another type of savings account. The interest rate is usually higher than a regular savings account, but there might be limits on when you can access your money, or you might have to put in a certain amount to open the account. There may be tax to pay on the interest if it exceeds the annual allowance.
Cash ISA
A cash ISA will pay interest, and any interest you earn is tax free. There are limits to how much you can put into a cash ISA each tax year.
Stocks and shares ISA
A stocks and shares ISA is an investment account, and your money will be invested in stocks and shares. The value of your money can go up or down, so you should not invest any money if you think you might need it for something in the near future. Stocks and shares ISAs are designed for investing and growing your money over the long term, so you should not choose this type of account if you need instant or regular access to your money. You do not have to pay tax on any investment income or gains within an ISA.
There are limits to how much you can put into a stocks and shares ISA each tax year.
A financial adviser can help you invest your money. See How to find a regulated financial adviser for more information.
If you choose to register for online banking, keep your login details safe and do not share them with anybody. Your bank will never ask you for this information, so if you receive a text, phone call or email asking for your login details you should not respond to it and report it to your bank immediately.
Tax may be due on any interest or gains you make on your savings or investments. See Paying tax on any profit or gains if you invest your compensation for more information.
You can check the current ISA allowances on GOV.UK.
How much of your money is protected in your bank account
The Financial Services Compensation Scheme (FSCS) protects each person up to £120,000, per UK-authorised banking licence. This means if your bank fails, you get 100% of your money back, up to £120,000.
The £120,000 protection applies per banking licence, not per bank or account. For example, if you have £120,000 in account A and £120,000 in account B, and both accounts are with the same bank, you will only be protected up to £120,000 in total.
Some banks share the same banking licence (for example, Halifax and Bank of Scotland). If you have £120,000 in a Halifax account and £120,000 in a Bank of Scotland account, you will only be protected up to £120,000 in total.
If you have money in a joint account, you will be protected up to £240,000 if your bank fails.
Compensation payments qualify for unlimited FSCS protection for the first 6 months. This means you will get 100% of your money back if your bank fails within the first 6 months of receiving your compensation. After 6 months the standard FSCS protection will apply.
You can check the status of your bank on the Financial Services Compensation Scheme (FSCS) website and ensure your money is protected.
Managing your money
Feeling overwhelmed
It is normal to feel overwhelmed by receiving a significant sum of money. A financial therapist or coach can help you explore your relationship with money. They can discuss any fears or worries you may have and help you to feel comfortable making financial decisions.
A financial therapist or coach cannot provide you with specific financial advice, like where to invest your money. You can search for a financial therapist or coach online on the Counselling Directory.
You do not have to make any financial decisions immediately. It is your right to take the time to decide what you would like to do with your compensation payment.
You do not have to tell anyone about your compensation payment if you do not wish to. See Looking after your mental health when receiving a large amount of money for more information.
Getting clear on your finances
Setting up a budget tracker to monitor your income and expenses can help you stay on top of your finances.
Setting up dedicated accounts
Setting up a separate bank account to receive your compensation, a separate bank account for your bills, and a separate bank account for your day-to-day spending is an effective way to manage your money.
Reviewing your will and leaving your estate to loved ones
A will is a legal document that lets you decide what happens to your money, property and possessions when you die. Without a will, the law decides who gets your money, which might not match your wishes. This is especially important if you are in a relationship or cohabiting but not married. Unmarried couples do not have an automatic right to inherit their partner’s estate, regardless of the length of the relationship or whether you have children. You can check who can apply for probate and inherit if someone dies without a will on GOV.UK.
Checking your credit score
A good credit score can help you take out credit agreements for things like mobile phone contracts, financing a car or applying for a mortgage.
You can find out your credit score online on the Experian website.
Clearing debt
If you have any debt, there are organisations that can offer free, confidential support:
Support for addiction
If you feel you would benefit from support related to substance or gambling addictions, there are organisations that offer free, confidential support:
Planning your goals
You may find it helpful to write down your financial goals. Some examples include:
- short term: paying off any debt, building an emergency fund or going on holiday
- medium term: purchasing property, funding education or starting a business
- long term: planning for retirement or later life, leaving wealth for future generations
Building an emergency fund
An emergency fund is a pot of money that you can access instantly in case of an emergency, like unexpected home repairs, a car breakdown or medical bills.
It’s good practice for your emergency fund to be enough to cover all of your expenses for a minimum of six months.
Making your money last
You may want to invest some or all of your compensation payment so that it grows in value over time. If you invest your money, the value may go down as well as up.
Unlike regular bank accounts, National Savings & Investments (NS&I) accounts are 100% backed by the UK Government. This means all of your money is fully protected, but the value of your money can go down.
A financial adviser can give you advice specific to your personal circumstances. See Financial advice for more information.
Reviewing your pension
You can check how much state pension you could get and when online on GOV.UK.
Your compensation payment does not count as income and will not take you over the personal allowance threshold.
If you think you might have previous workplace pensions you can find pension contact details online on GOV.UK.
If you have multiple workplace pensions, a financial adviser can review, manage or combine them for you. See Financial advice for more information.
If you need further financial guidance, there are organisations that can offer free support: