How are your bank deposits protected?

As the Government extends its bank guarantee scheme until the end of the year, confusion persists over which deposits are protected and in which institutions, writes John Cradden

Thursday September 02 2010

YOU may not have noticed, but the Government’s much-criticised bank guarantee scheme was extended recently.

The scheme, which was launched in September 2008 just as the banking crisis began, protects all deposits with certain financial institutions and was due to expire at the end of September this year.

The guarantee is based on two pieces of legislation and its official name is the Eligible Liabilities Guarantee Scheme (ELGS). Now, the European Commission has given permission to the Government to extend it until the end of this December.

What confuses many people is that this scheme is different from the Government’s Deposit Protection Scheme (also referred to as the Deposit Guarantee Scheme), which has been in place for some time and has no end date.

So what’s the DPS about then?

The Deposit Protection Scheme, which has been in place since 1995 (as was required by EU rules), guarantees individual deposits of up to €100,000 at any bank, building society or credit union regulated by the Financial Regulator.

Since 1999, you could only claim a maximum of €20,000 under this scheme, but in September 2008 this limit was increased by the Government to €100,000 and credit unions were included for the first time.

The scheme applies per person, per institution. This means that the most you can claim is €100,000 for each institution in the scheme, but if you have deposits with more than one of them, you can claim up to €100,000 per institution.

The scheme applies to current accounts; demand deposit accounts; term deposit accounts; share accounts and deposit accounts with building societies; and share accounts and deposit accounts with credit unions.

Its reach extends to 16 Irish and non-Irish deposit-taking institutions in Ireland, although this will reduce to 14 now that Halifax has exited the Irish market and An Post’s Postbank is due to wind up.

How does the DPS differ from the ELGS?

The DPS covers you for any deposit per institution up to €100,000, but if you have more than €100,000 deposited in the same institution, then any amount above €100,000 will be covered by the ELGS, at least until December.

However, this scheme only covers seven institutions: AIB, Anglo Irish Bank, Bank of Ireland, EBS, ICS, Irish Life and Permanent and Irish Nationwide.

So together, the DPS and the ELGS essentially represent a sort of twin-tracked approach to guaranteeing that your money is safe.

Does it matter with the ELGS what type of account I have?

No, the ELGS still applies to all types of accounts, including current accounts. It also applies to fixed-term deposits in qualifying institutions, which are protected in full for up to five years.

However, the rules for fixed-term deposits are slightly different because there is a time limit for qualifying. The first €100,000 in any one institution is covered by the DPS in any case, but whether any balance above €100,000 is covered depends on whether your institution was a member of the ELGS when you deposited your money.

In other words, you must have placed your deposit with one of these seven institutions after they joined the scheme, which started last December.

Not all of the seven institutions joined the ELGS at the same time. You should check with your institution if you are not sure.

What does the extension of the ELGS mean for me?

Nothing if you have less than €100,000 deposited in any one institution, as you are covered by the DPS anyway.

If you do have more than €100,000 in any one institution, and as long as that institution is one of the seven covered by the ELGS, the balance above €100,000 is covered at least until December 31.

Whether it will continue to be covered after that will depend on the next ELGS review by the European Commission, which happens every six months.

Even if the commission rules out a further extension, is the DPS still in place?

Yes, it is more or less a permanent scheme, as required by EU rules. As well as the requirement to have a deposit guarantee scheme, all EU states will have to provide the same level of deposit protection of up to €100,000 by the end of this year.

What if I am banking with an institution that is not covered by either the DPS or ELGS?

If you have an account with a bank that has a branch in Ireland but is regulated in another country, you would usually have to make a claim under the compensation schemes that are in place in that country.

Investec Bank, Leeds Building Society, Nationwide Building Society and Northern Rock are covered by the British scheme. This would pay compensation up to the limit of £50,000 (€61,000) per person, per institution.

Rabodirect is covered by the Dutch scheme (€100,000), while National Irish Bank is covered by the Danish scheme, which is limited to €50,000 but will rise to €100,000 by October 1.

If you have a term deposit of more than €100,000 and your bank is not a member of the ELG scheme, check with your financial institution as you may be covered under a scheme in another country.

This article first appeared in the Irish Independent

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