Bank deposit guarantee schemes are designed to protect your savings and investments – but what are the limitations per customer in both France and the UK?
We trust banks to look after our savings – indeed many people consider bank deposits to be ‘no-risk’ investments – but unfortunately, banks can and do fail. While the 2008 financial crisis is fading into history, earlier this year we saw Swiss banking giant Credit Suisse suddenly taken over by rival UBS, and two niche US banks collapsed.
Banking regulations are tighter today than they were in 2008. Banks are required to hold more capital and have stricter risk management, with the largest subject to rigorous stress tests. Bank deposit guarantees are also much higher, giving clients more peace of mind.
That said, we should all still understand what protection our savings have in the unlikely event of institutional failure. Not just for banks, but also the investment and insurance companies you use.
Savings protection in France
The EU Directive on Deposit Guarantee Schemes (DGS) ensures that all member states have a scheme to compensate savers in the event of bank failure. An update in March 2009 required banks to increase coverage to €100,000 by the end of 2010, and this still stands today.
In France, we have the Fonds de Garantie des Dépôts et de Résolution (FGDR), to which all French-authorised banks contribute.
The FGDR covers bank accounts (current and deposits); savings plans such as the Plan d’Epargne Logement (PEL) and Plan d’Epargne Populaire (PEP); cash accounts associated with equity savings schemes (PEA), pension savings schemes (PER), etc. These are added together and compensated up to a maximum of €100,000 per customer, per bank.
It also covers savings accounts such as Livret ‘A’, Livret Bleu, Livret Développement Durable et Solidaire (LDDS), and Livret d’Epargne Populaire (LEP), again added together with a €100,000 limit per customer per bank.
Since the guarantee is per customer, jointly owned accounts are protected up to €200,000. Note however that it is per banking group, not per bank. France aims to make the payable amount available within seven working days.
You may be eligible for an additional €500,000 guarantee if you have a “temporary high balance”. This can apply, for example, if you just sold a property or received an inheritance – but only covers three months after the funds are received.
The FDGR also covers the ‘investor compensation scheme’ which guarantees French-authorised financial securities up to €70,000 per customer, per institution. This excludes investments provided by portfolio management companies.
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Savings protection in the UK
The UK protection level has not changed since the UK left the EU, and the guarantee limit provided by the Financial Services Compensation Scheme (FSCS) is £85,000, (roughly matching the EU’s €100,000).
The rules are the same as in France – protection is per depositor (accounts in joint names, therefore, have £170,000) and per banking institution. It aims to pay compensation within seven days of a bank or building society failing, though complex cases will take longer. The FSCS provides a £1 million protection limit for temporary high balances (up to six months).
The only difference so far since Brexit is that protection for deposits held in EU/EEA branches of UK firms is now covered by the local deposit guarantee scheme in that country, not the FSCS.
Savings protection in the UK offshore centres
Many British expatriates in France keep some savings in the Channel Islands or the Isle of Man. Be aware that they are not covered by the UK scheme, even if they are divisions of UK banks.
The Isle of Man, Jersey, and Guernsey depositor compensation schemes in all provide protection up to £50,000 per person for covered banks. The Channel Islands aim to pay compensation within three months, Isle of Man has no time limit. Their compensation funds are capped.
Bank deposit guarantee schemes – Protecting yourself
If you have bank deposits over the guarantee limits, for peace of mind spread your savings out over more than one banking group.
You could also consider alternative options for your savings which provide a higher level of investor protection than banks can offer.
Luxembourg’s investor protection regime is the strongest in Europe and requires that all clients’ assets are held by an independent custodian bank approved by the regulator. The bank must ring-fence clients’ securities – investment funds, shares, bonds etc – so they are held off balance sheet. If the bank fails, these securities remain in segregated client accounts. 100% of the policyholder’s securities are protected. Cash deposits are not protected, but cash held in monetary funds are treated as securities.
As always, your savings and investment decisions should be based around your personal objectives, circumstances, time horizon and risk profile. Take personalised, regulated advice on asset protection and a suitable, tax-efficient. investment approach for you in France.
Contact Blevins Franks to arrange a consultation today.