How are your savings protected?

With the global banking industry back in the news again, this is a good time to look at what bank guarantees are in place in the event of institutional failure.

Spain banks

Under an EU directive, each EU country provides a bank deposit guarantee of €100,000. In the event a bank fails, your national deposit guarantee scheme (Fondo de Garantía de Depósitos de Entidades de Crédito (FGD) in Spain) will refund your savings, up to the €100,000 limit. Savings above this could be lost if your bank fails.

Deposits are covered per depositor, so joint accounts have €200,000 protected. The guarantee is per banking group, not per bank account or even per bank – some banks with different names form part of the same group, so be careful.

Under certain circumstances (eg, after selling a property) you may be

By Jon Pemberton, Partner, Blevins Franks

Spain aims to make the payable amount available within ten working days, reducing to seven from 2024.

UK banks

In the UK, accounts in regulated banks are protected by the Financial Services Compensation Scheme. The amount protected is currently and banking institution.

The FSCS aims to pay compensation within seven days, though more complex cases will take longer.

UK offshore centres

Banks in the Channel Islands and Isle of Man are not covered by the UK scheme, even if divisions of UK banks. You rely on their local guarantee schemes, which offer lower levels of protection.

The Isle of Man’s Depositors’ Compensation Scheme (DCS) provides compensation up to £50,000 per person for covered banks, with no time limit for payment. The amount of compensation paid and timing will depend upon the size, asset quality and profile of the failed bank and amount of funding contributed. There is no standing fund for the DCS. It is funded if and when required by contributions from participating banks and the Isle of Man Treasury, capped at £200 also £50,000, capped at £100 million in any five-year period. They aim to pay compensation within three months of a bank failure.

Protecting your savings

Many savers with larger cash deposits spread them out over more than one bank.

Others have opted to move capital into arrangements which provide a higher level of investor protection than banks can offer. For example, with investment bonds issued by Luxembourg regulated insurance companies, your investment assets are protected should the insurance company fail.

Luxembourg provides very robust protection for life assurance policy holders, the strongest in Europe. The cornerstone of its ‘Triangle of Security’ investor protection regime is the legal requirement that all clients’ assets are held by an independent custodian bank approved by the balance sheet. If the bank fails, these securities remain in segregated client accounts – 100% of your securities are protected. This does not include cash deposits, but cash held in monetary funds are treated as securities. In any case, ensure you have adequate diversification across different investment assets. This reduces risk as well as increasing potential for improved returns.

As always, your savings and investment decisions should be based around your personal objectives, circumstances, time horizon and risk profile. Take personalised advice on asset protection and a suitable tax-efficient investment approach for you in Spain.

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

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