Blevins FranksFollowing the tumultuous year suffered by the banking industry many savers have lost confidence in bank deposits. As widely reported in the UK, the authorities responded by increasing the bank deposit guarantee limit from £35,000 to £50,000 in October. Other countries have also increased the amount they will refund in the event a bank goes into default.
This article summarises how the UK scheme works and provides information on the Spanish system. It also covers the offshore centres where many expatriates move to their savings to after once have left the UK.
Spanish Bank Deposit Guarantees
Bank deposit guarantees in Spain are known as Fondos de Garantía de Depósitos (FDG).
The monetary amount guaranteed is limited up to a maximum of €100,000 per depositor in each credit institution. This was increased from €20,000 to €100,000 in October 2008, in reponse to the credit crunch.
The guarantee is applied per depositor. When an account has more than one holder, the sum would be divided between the holders according to the terms of the contract of deposit, or in equal parts otherwise. Each holder is guaranteed up to the maximum limit.
Holders of credit balances no covered by the guarantee (eg, amounts over €100,000) will continue to have the status of ordinary creditors of the credit institution.
Bank Deposit Guarantee arrangements in other countries
UK – Financial Services Compensation Scheme (FSCS)
The FSCS is the UK’s compensation fund of last resort for customers of financial services firms authorised by the Financial Services Authority. The FSCS can pay compensation to consumers if such a firm is unable, or likely to be unable, to pay claims against it and so is in “default.”
The compensation limit of £50,000 applies to each depositor for the total of their deposits with an organisation, regardless of how many accounts they hold. In the case of joint accounts, each holder would be eligible for compensation up to the maximum limit.
Depositors with deposits above the limit may receive additional funds above and beyond what comes from the FSCS. They may receive a share of their savings back following any distribution of assets as part of the insolvency process for a failed bank. The process can take a long time to complete. Depositors will have to wait until the liquidation has been completed to find out how much more they might receive in total. There is no certainty that they will receive any further payments.
The FSCS does not cover deposits in the Channel Islands or Isle of Man, irrespective of branch or subsidiary. Deposits held in a Gibraltar branch of a UK authorised bank are however covered.
In the case of UK branches of European banks (from the European Economic Area), claims would be made to the appropriate country’s scheme. If that scheme’s maximum payout is less than £50,000 the FSCS will make up the difference provided the bank has elected to join the FSCS to ‘top up’ the level of protection.
Offshore banks
Isle of Man – Depositors’ Compensation Scheme (DCS)
The DCS compensates people who have money in current and deposit accounts in the Isle of Man with up to £50,000 of net deposits per individual depositor per deposit taker, if this bank or building society fails.
Prior to October, only October only 75% of up to £20,000 (i.e. £15,000) was covered.
If two or more individuals share a joint account, they would each be entitled to up to £50,000 in compensation. However, if either individual has any other accounts with that same organisation, these balances would also be taken into consideration since compensation is limited to £50,000 per individual.
The DCS covers all individuals, irrespective of which country they live in.
Jersey
At the time of writing there is no deposit compensation scheme. In October Jersey chief minister Frank Walker confirmed that the States would guarantee every penny of Island residents’ savings until a deposit protection scheme is drawn up.
Guernsey
Again, at the time of writing there is no scheme in place. However Guernsey officials have begun discussing the development of a depositors’ protection scheme. They hope to have it in place by the end of the year. It is not yet known if it will apply to all depositors or only Guernsey residents.
Gibraltar – Deposit Guarantee Scheme
Any claimant which has a qualifying deposit will be entitled to receive the lesser amount of:
90% of the total of all qualifying deposits with the failed bank (including all branches), or £18,000 (or the Sterling equivalent of €20,000, whichever is the greater).
