Deposit protection: why your money is protected even in the event of a bank failure
Yesterday still king of interest, today possibly bankruptcy candidate. Bremer Greensill Bank could actually become the largest compensation case in Germany for years. This is causing worry lines on the foreheads of many investors. But such a bankruptcy would not be a cause for concern for private investors. If you have money in the bank, the following applies: 100,000 euros per person are legally protected. And with additional deposit protection on a voluntary basis, even significantly higher amounts.
When Finanztip recommends banking products
The traditional banks and savings banks practically no longer give interest on overnight and fixed-term deposits. Some are already charging negative interest. That is why many savers are looking for alternatives. And also go to banks with unknown names.
In the Finanztip editorial team, we have long weighed the conditions under which we can recommend such banks to our readers. It was always clear to us: money in a daily or fixed deposit account must be absolutely safe. That’s why we never simply recommended the banks with the highest interest rates.
Our consideration, in a nutshell: the business risks of the banks cannot be assessed in detail from the outside, which is why we generally assume the worst case scenario – what happens if a bank goes bankrupt? In other words: We judge the bank on the quality of the deposit insurance. If it is perfect, we can recommend it.
We have explained this rule here in the newsletter. And it is the benchmark for all of our recommendations on savings. You can read about our approach in detail in this guide.
Where the deposit insurance could stutter
That’s why we recommend deliberately no banks from the security systems of economically weaker countries such as Italy or Croatia. They also appear in the rankings of other media; in our calculator for fixed-term deposits, on the other hand, only in the “Other offers” column – separate from our financial tip recommendations. Reason: The slightly higher interest rate does not justify the risk.
In 2014, for example, there was a rush of customers to two large banks in Bulgaria – one of them Fibank, where German savers had money. They lost no money at the time, but if the crisis had continued, we believe that deposits in these countries would have been more at risk than in financially strong countries. At the other Bulgarian bank, the Corporate Commercial Bank, savers were not compensated until several months later in 2014.
There are common EU rules for deposit insurance, but the emergency pots are still set up independently by each country. In the event of a major bankruptcy, two things would happen: First, the savers get money from the compensation pot. As soon as it is empty, the deposit insurance gets the missing money from the other banks – and in the last instance, the state itself would have to step into the breach. We do not want to rely on whether that will actually happen in these countries.
Where the deposit insurance is resilient
We consider the safety net in Germany and in a number of economically strong European countries such as France and Austria to be resilient enough to be responsible for much larger bank failures than could happen now in the Greensill case. In doing so, we rely on the judgment of international rating agencies. Other countries in which you can currently safely invest time deposits are Luxembourg, Sweden, the Netherlands and Norway.
As it is now with the Greensill Bank continues and we answer other questions from you in the sequel on Finanztip News.
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