December 8, 2019

How safe is my money on deposit?

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A question I get asked quite frequently, even in today’s economy, is: ” Is my money safe?” There is no doubt that the level of distrust and incredulity that was directed towards banks after the Celtic Tiger crisis had turned a once sacred cow into a national pariah. And from that, depositors feared for their own account balances like never before. As I write, there are two levels of protection afforded to Irish retail depositors, as distinct from institutional or corporate. These protections are the Deposit Guarantee Scheme and the Eligible Liabilities Guarantee Scheme.

The Deposit Guarantee Scheme is operated by the Central Bank of Ireland and extends to particular retail deposits held with banks, building societies and credit unions that have been established and authorised to trade in the Republic of Ireland. The EU limit on all such schemes is €100,000 per depositor or €200,000 per couple and covers the sum total of all deposits held with an institution. This scheme is open ended and has no particular time limit. The scheme covers:

1. current accounts;

2. demand deposit accounts;

3. term deposit accounts;

4. notice deposit accounts

5. share accounts with building societies and credit unions.

Retail investors are defined as one of the following:

1. private individuals, sole traders, partnerships

2. small companies, which meet at least two of the following requirements:

a. a balance sheet total of less than €1.9m

b. turnover less than €3.8m,

c. average number of employees less than 50.

3. charities,

4. voluntary organisations,

5. credit unions, in respect of deposit they may hold with other financial institutions.

6. trustees of Small Self Administered Pension Schemes.

The scheme does not protect what might be called ‘professional’ investors, such as deposits held by pension funds other than SSAPS, life and general insurance companies, investment funds, large companies, etc. Importantly, any amount the depositor owes a bank is not deducted from the deposit amount to determine the amount of compensation a depositor can get in the event of the bank being unable to repay its depositors.

However, all of the Irish banks and building societies covered by the Deposit Guarantee scheme are also covered by the Eligible Liabilities Guarantee Scheme, which covers retail deposits for the excess, if any, over €100,000 per depositor – see below.

I would add that a depositor with more than €100,000 to invest (or €200,000 for joint accounts) can split their deposits over a number of different institutions to benefit from the €100,000 limit with each institution.

The Eligible Liabilities Guarantee Scheme was introduced on 9th December 2009, and guarantees certain deposits held with banks covered by the scheme (called the ‘covered institutions’) as follows:

1. the excess, if any, over €100,000 of deposits which are covered by the Deposit Guarantee Scheme, and

2. the full deposit amount, without limit, for other deposits not covered by the Deposit Guarantee Scheme and which are covered by the Eligible Liabilities Scheme.

At this point in time while the Deposit Guarantee Scheme is open ended, the Eligible Liabilities Guarantee Scheme only extended to 30th June 2011. It should be added that, any deposit term that commenced before 30th June 2011 was covered up to a maximum term ceasing at 30th June 2016. Interestingly, any fixed term deposit account opened with a bank before a bank joined the ELG scheme is NOT covered by the ELG scheme and may only be covered (if a retail depositor) by the DGS.

Finally, the operation of the ELG scheme is subject to ongoing approval by the European Commission, in accordance with EU State aid rules.

Foreign owned banks may be accepting deposits in the Republic of Ireland either through ownership of a separate bank established and authorised here (e.g. KBC Bank Ireland plc, which is 100% owned by KBC Bank) or through a branch established here (e.g. Rabobank operates here as a branch of its Dutch bank) or operating on a cross border basis (e.g. Investec Bank plc operating from the UK). The foreign banks which operate as separate banks established here are covered by the Irish Deposit Guarantee scheme, up to €100,000 per depositor. None of these foreign owned banks are part of the Irish Government ELG scheme.

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