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How are your savings protected? Bank deposit guarantee schemes

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.

You’ve worked hard to build up your savings. For peace of mind, establish what investor protection you have with each of the financial institutions you use – not just banks, but also investment firms, insurance companies etc. Where necessary, take steps to improve your position.

Portugal 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 (Fundo de Garantia de Depósitos, FGD, in Portugal) will refund your savings, up to the €100,000 limit.

Savings above this could be lost if your bank fails. You may receive additional funds following any distribution of assets as part of the insolvency process, but this would depend on the bank’s situation at the time.

Deposits are covered per depositor, so joint accounts have €200,000 protected. Note that 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 (e.g., after selling a property), you may be eligible for higher protection for temporary high balances.

Portugal currently aims to make the payable amount available within 10 working days, reducing to seven from 2024.

UK banks

In the UK, accounts in regulated banks are protected by the Financial Services Compensation Scheme (FSCS). The amount protected is currently £85,000 (matching the EU).  It also provides a £1 million protection limit for temporary high balances. Protection is per depositor and per banking institution.

The FSCS aims to pay compensation within seven days of a bank or building society failing, though more complex cases will take longer.

According to the FSCS website, there are currently no plans to change the £85,000 limit post Brexit. It explains that its protection “is not dependent upon the depositor’s place of residence, but where the bank, building society or credit union holds the deposit”. However, since January 2021, protection for deposits held in EU/EEA branches of UK firms are covered by the local EEA deposit guarantee scheme in that country.

UK offshore centres

Banks in the Channel Islands and Isle of Man are not covered by the UK scheme, even if they are divisions of UK banks. Instead, 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. There is no time limit for the payment. The amount of compensation paid, and timing of payments 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 million for a 10-year period.

The limit of Jersey and Guernsey’s depositors’ compensation schemes is 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 have spread them out over more than one bank. It results in more paperwork but is worth it for peace of mind.

Others have opted to move capital into arrangements which provide a higher level of investor protection than banks can offer. For example, if you have an investment bond issued by a Luxembourg regulated insurance company, 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 must be held by an independent custodian bank approved by the state regulator.

The bank is required to ring-fence clients’ securities (investment funds, shares, bonds etc) so they are off its balance sheet. If the bank fails, these securities remain in segregated client accounts. 100% of the policyholder’s securities are, therefore, protected. This does not include cash deposits, but cash held in monetary funds are treated as securities and so protected.

In any case, you should always ensure you have adequate diversification across different investment assets. This reduces risk as well as increasing the potential for improved returns.

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

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.

Keep up to date on the financial issues that may affect you on the Blevins Franks news page at

Dan Henderson

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Dan Henderson is a Partner of Blevins Franks in Portugal. A highly experienced financial adviser, he holds the Diploma in Financial Planning and advanced qualifications in pensions and investment planning from the Chartered Insurance Institute (CII). |