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How are your savings protected? Bank deposit schemes explained

Bank deposit guarantee schemes in the UK and the EU

European banks offer a deposit guarantee of up to EUR100,000 (₤ 85,000 in the UK). In Jersey, Guernsey, and Isle of Man, compensation is limited to ₤ 50,000. When you have worked hard to accumulate your savings, it is essential to know where you stand if the financial institution holding your money fails. For peace of mind, you ought to identify what investor protection you have with each of the financial institutions you use – banks, investment firms, insurance companies, etc. – in the event of institutional failure. If required, take measures to improve your position.

What is the protection banks offer?

EU banks

Under an EU Directive, each EU country offers a bank deposit guarantee of EUR100,000. Your national deposit guarantee scheme will reimburse your savings up to the limit of EUR100,000 if a bank fails.

If your bank fails, savings above the EUR100,000 could be lost. You may receive further money after any asset distribution as part of the insolvency procedure, but this would depend on the situation of the bank at the time. Deposits are covered per depositor, so couples with joint accounts have EUR200,000 protection.

Bear in mind, the guarantee is per banking group, not per bank account, or even per bank. Some banks with various names form part of the same group, so you have to be cautious.

Under specific circumstances (for example, after selling a property), you may be entitled to higher protection for temporary high balances. You have to check at your local scheme to ascertain what the higher guarantee is and how long it is considered “temporary” (for example, in France and Spain it is only three months).

Savings – National deposit guarantee schemes.

Malta: Depositor Compensation Scheme.

Cyprus: Deposit Guarantee and Resolution of Credit and Other Institutions Scheme (DGS).

Spain: Fundo de Garantia de Depósitos de Entidades de Crédito ( FGD).

France: Fonds de Garantie des Dépôts et de Résolution ( FGDR).

Portugal: Fundo de Garantia de Depósitos ( FGD).

Timetable for savings protection payments in the EU

France and Cyprus aim to make the amount payable within 7 working days.

In Spain and Portugal, the time frame decreased from 15 working days to 10 from 1 January 2021, and will be 7 from 2024.

UK Banks

In the United Kingdom, accounts in regulated banks are safeguarded by the Financial Services Compensation Scheme (FSCS). The amount protected should be the same as provided in the EU and is currently ₤ 85,000.

As in Europe, protection is per depositor (so accounts in joint names are protected up to ₤ 170,000), and per banking institution. An institution is not the same as a bank; Halifax and Bank of Scotland, as an example, belong to the same institution.

Timing of savings protection payments in the UK

The FSCS aims to pay compensation within seven days of a bank or building society failing, though more complex cases will take longer.

The impact of Brexit.

According to the FSCS website, there is currently no plan to change the ₤ 85,000 limit post Brexit. It also explains its protection “is not dependent upon the depositor’s place of residence, but where the bank, building society or credit union holds the deposit”.

Nothing changes for UK nationals living in the EU with savings in a UK-authorised bank.

Since January 1, 2021, the protection of deposits held in EU/EA branches of UK firms has now been covered by the local EEA deposit guarantee scheme in that country, and is no longer covered by the FSCS.

UK offshore centres

Banks in the Channel Islands and Isle of Man are not covered by the UK scheme, even if they are divisions of UK banks. Instead, you would have to rely on their local guarantee schemes, which offer less protection.

Jersey and Guernsey

The limit to depositor compensation schemes in Jersey and Guernsey is ₤ 50,000, capped at ₤ 100 million in a five-year period. They intend to pay compensation within three months of a bank failure.

Isle of Man

The Isle of Man’s Depositors’ Compensation Scheme (DCS) offers compensation of up to ₤ 50,000 for covered banks.

There is no time limit for payment of compensation. The amount of compensation paid and the timing of payment will depend on the size, asset quality, and profile of the failed bank, and the amount of funding contributed.

There is no standing fund for the DCS. Contributions fund and required from covered banks which participate in the DCS and the Isle of Man Treasury, capped at ₤ 200 million for a 10-year period.

Luxembourg’s ‘Triangle of Security’

Luxembourg offers effective protection for life assurance policy holders. The foundation of its ‘Triangle of Security’ investor protection program is the legal requirement that an independent custodian bank must hold all clients’ assets approved by the state regulator.

The bank is required to lend securities to its clients – investment funds, shares, bonds, etc. – so that they are off the balance sheet. These securities remain in segregated client accounts if the bank fails. 100% of the policyholder’s securities are therefore protected.

This does not include deposits in cash, cash held in monetary funds is treated as securities and is therefore protected.

Regardless, you should always make sure that you have adequate diversification throughout different investment assets. This decreases risk and increases the potential for enhanced returns.

As always, your savings and investment choices should be based on your personal goals, circumstances, time horizon and risk profile.

Protection of your investments and savings

Many savers with more substantial deposits have spread them over more than one bank. It results in more paperwork, but is worth it for peace of mind. Others have chosen to move capital into arrangements which offer a higher level of investor protection than banks can offer.

If you have an investment bond issued by a Luxembourg-regulated insurance company, your investment assets will be protected if the insurance company fails.

Lawsons Equity Financial Advisors Malta

Talk to Lawsons Equity for tailored advice on asset protection, effective diversification and tax-efficient investment arrangements that are available to you in your country of residence. To schedule a no obligation initial consultation with one of our financial advisors, click here.

Information is based on our current understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change.

The value of investments and income from them may go down. You may not get back the original amount invested.

Lawsons Equity Limited is a company registered in Malta with company number C49564 and licensed by the Malta Financial Services Authority as Enrolled Insurance Brokers under the Insurance Intermediaries Act 2006, and to offer Investment Services under the Investment Services Act, 1994.

Lawsons Equity Ltd have passported their services across the EU. To see a full list of countries, click here.

In the United Kingdom, Lawsons Equity Limited is deemed authorised and regulated by the Financial Conduct Authority. Details of the Temporary Permissions Regime, which allows EEA-based firms to operate in the UK for a limited period while seeking full authorisation, are available on the Financial Conduct Authority’s website.

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