What Investor Protection Do Your Savings Have?


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These are difficult times for banks. Some European banks have suffered credit downgrades and the French and Belgium governments had to step in to rescue Dexia. With all this going o

These are difficult times for banks. Some European banks have suffered credit downgrades and the French and Belgium governments had to step in to rescue Dexia. With all this going on I think it would be useful to revisit the subject of deposit guarantee schemes and investor protection.

Bank deposit guarantee schemes reimburse depositors if their bank has failed, though only up to a set limit. If your savings at one bank amount to more than that jurisdiction?s limit, you continue as ordinary creditors of the institution for the amount not recovered by the scheme, and may receive additional funds following any distribution of assets as part of the insolvency process. How much you receive and when depends on the liquidation of the company, and there is no certainty of further payment.


EU Directive 94/19/EC ensures that all Member States have a ?safely net? for bank account holders. In the event of a bank failure, the national deposit guarantee scheme will reimburse account holders up to the set limit.

While the initial maximum protection was ?20,000, it was first increased to ?50,000 in October 2008 and then to ?100,000 at the end of 2010.

Deposits are covered per depositor per banking group. If, for example, you have ?25,000 in your current account; ?40,000 in a savings account and ?90,000 in a fixed deposit account, all with the same bank, the deposit guarantee will only cover you for ?100,000 and the remaining ?55,000 could potentially be lost.

Bank holders should get their money back (up to ?100,000) within six weeks. Under proposals this should be reduced to seven days by the end of 2013.

While all Member States have to guarantee ?100,000, each State has their own scheme, so that Spain has its Fondos de Garantia de Depositos; France the Fonds de Garantie des D??s, Portugal the Fundo de Garantia de Dep?itos etc.

UK – Financial Services Compensation Scheme (FSCS)

With effect from 31st December 2010, the deposit compensation limit increased from ?50,000 to ?85,000, in line with the EU?s increase to ?100,000. Compensation limits apply to individuals, not accounts.

The guarantee applies per authorised firm, not per bank brand. Some banks with different names are actually part of a single authorised firm so you need to be careful.

The FSCS aims to pay compensation in the most cases within seven days of a bank/building society failing; while for more complex cases compensation will be paid within 20 working days.

Note that the FSCS does not cover deposits outside the European Economic Area, or in the Channel Islands or Isle of Man.

Isle of Man – Depositors? Compensation Scheme

The maximum compensation is ?50,000 of net deposits. It is calculated per depositor, in respect of all the accounts you hold with any one deposit taker.

If a bank fails a fund will be created in order to pay compensation to depositors. The maximum fund will be ?200 million any point in time, half of which is paid by other Isle of Man banks and half by the government.

There is no guarantee as to when you will receive your compensation. How much you receive and when will depend on the size of the bank and the amount of funding contributed.

Guernsey – Banking Deposit Compensation Scheme

The Guernsey scheme came into force in November 2008. If a bank fails it will pay compensation of up to ?50,000 per qualifying deposit. The scheme aims to give depositors their compensation within three months.

The maximum total amount of compensation is capped at ?100 million in any five year period. If claims exceed this, compensation will be reduced pro rata.

Jersey – Bank Depositors Compensation Scheme

The Jersey scheme was introduced in November 2009. It provides protection of up to ?50,000 per person, per Jersey banking group. An interim payment of up to ?5,000 will be made within seven working days and the balance of compensation within three months.

The maximum liability of the DCS is capped at ?100 million in any five year period.

Gibraltar – Deposit Guarantee Scheme

The maximum payment increased from ?50,000 to ?100,000 on 31st December 2010, to match the EU compensation limits.

The above information covers bank accounts. It has been summarised so you should confirm the full rules for your specific bank and jurisdiction. You also need to establish what level of protection your other financial arrangements (investments, insurance policies etc) have in the event of institutional failure. This varies according to the type of arrangement and the country they are managed or regulated in.

Many savers with large cash deposits have already spread them over more than one banking group. Others have moved capital into alternate arrangements that provide a higher level of protection.

For example Luxembourg offers the maximum possible investor protection available to life insurance policyholders through a state sponsored investor protection regime known as ?The Triangle of Security?. If you have an investment bond issued by a Luxembourg regulated insurance company, your investment assets are completely protected should the insurance company fail. The regime offers complete segregation of clients? assets from either the creditors of the insurance company or any of its custodian banks.

The failure of a major bank remains unlikely ? but if you have savings above the compensation limit, would you really want to risk them? And what about small banks? For peace of mind you should establish exactly what protection you have and then talk to a wealth management adviser like Blevins Franks to see if there are steps you can take to increase your investor protection, in line with your particular circumstances.

By Bill Blevins, Managing Director, Blevins Franks

14th October 2011

All information contained in this document is based on our understanding of legislation and taxation practice, in the UK and overseas at the time of writing; this may change in the future.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.