FSCS protects you when financial firms fail, which is why all reputable banks have FSCS protection. This protects your balances of up to £85,000 per institution if the bank/banking group goes bust. Popular money app Revolut and certain other travel money card providers do not have a banking license thus your balances are not directly FSCS protected. Revolut have applied for a banking license, and may soon get one, but thus far been denied due its auditor highlighting problems with its accounts (via This Is Money).
Some people are unsure how these sorts of financial institutions work, and this article is not designed to create worry, but to educate and make travellers aware of how they work. Money loaded onto pre-paid travel cards are classed as "electronic money" which means your actual balance will actually be held in a bank (or over several) ringfenced from their own operating cash. So as long as a travel money card provider has followed the rules, if it were to go bust, the banks that are actually holding your money should be protected and returned to you. However, it gets complicated when if one of the banks the travel money card provider has your balance in goes bust (and the travel money card provider is still in business) your cash is NOT protected. Find out what banks these travel money card providers hold your balance in to understand your risk. Check if the balance is held with a bank you know and trust or if it's held by one you've never heard of, and decide if that's okay to you.
What does this mean for you? Many people hold balances and top up when rates are good for spending money for Walt Disney World or Disneyland Paris, and happy to take the risk over the convenience of the app. For the majority of people the risk is still VERY low as long as you use these services for immediate or very short term use and not holding balances over long periods of time.
Alternatively, digital banks like Chase, Monzo or Starling* (banks with FSCS protection) are an option. They all offer current accounts that have 0% transaction fees abroad and who use the market-leading Mastercard exchange rate. The balances stay with the banks and are protected with them directly. These digital banks have great features like telling you what you spent in both Euros/Dollars and pounds at the current exchange rate, as well as much more.
It's always worth spreading your money use over several methods. For example, a Starling*/Chase/Monzo debit card, a 0% credit card, and some cash. For the US some cash is a must for tips and emergencies.
* Mickey From The UK may be compensated if you signup to a Starling account using our link. This is NOT a paid advertisement article and the use of affiliate links has no way impacted the content of this article.
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