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, so should establish what level of protection you have in the event the financial institution is unable to repay your money.
Under an EU directive, each EU country provides a bank deposit guarantee of €100,000. Should a bank fail, your national scheme will refund your savings, up to this limit. UK bank accounts are protected by the Financial Services Compensation Scheme (FSCS) and the limit is currently £85,000.
Savings above these limits could be lost. You may receive additional funds following any distribution of assets as part of the insolvency process, depending on the bank’s situation.
Compensation is per depositor, so couples with joint accounts have €200,000 protected. The guarantee is per banking group, not per bank account or per bank – beware that some banks with different names form part of the same group.
Under certain circumstances, you may be eligible for higher protection for temporary high balances.
Banks in the Channel Islands and Isle of Man are not covered by the UK and their local guarantee schemes offer lower levels of protection – £50,000 per individual. Compensation payments are capped at £200,000 for a 10-year period in Isle of Man and £100 million in a five-year period in Jersey and Guernsey.
Many savers with larger cash deposits have spread them out over different banks. Others have opted to move capital into arrangements providing a higher level of investor protection than banks can offer. For example, with investment bonds issued by Luxembourg regulated insurance companies, your investment assets are protected should the company fail.
Luxembourg provides robust investor protection for life assurance policy holders. Under its regime, all clients’ assets must be held by an independent custodian bank, which must 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 protected (not including cash deposits).
Also ensure you have adequate diversification across different investment assets. This reduces risk and increases the potential for improved returns. Your investment decisions should be based around your personal objectives, circumstances and risk profile. Take personalised advice on asset protection and a suitable tax-efficient investment approach for Spain.
This information is based on our understanding of legislation and practice at the time of writing which may change in the future.
Keep up to date on the financial issues that may affect you on the Blevins Franks news page at www.blevinsfranks.com