Deposit protection
Customer deposits at banks are protected by the statutory deposit guarantee scheme as well as the voluntary deposit protection fund. This is intended to ensure that in the event of a credit institution's insolvency, the creditors, in this case private savers, are spared from a loss of their bank balance.
Components of Deposit Insurance
The fundamental idea behind deposit insurance is to protect the wealth of the population while simultaneously preventing a run on the bank in the event of insolvency. The origin of deposit insurance goes back to various financial and economic crises. The first deposit insurance emerged in 1933 in the USA, following the Great Depression of 1929. Deposit insurance consists of two components: the statutory (mandatory) deposit insurance and the voluntary deposit protection fund. The former is managed in Germany by the Compensatory Fund of German Banks (EdB). With the voluntary deposit protection fund, however, banks can choose to make additional contributions voluntarily in order to secure customer funds even beyond €100,000.
1.) Statutory Deposit Insurance
Through statutory mandatory deposit insurance, balances on current accounts, instant access savings accounts, fixed-term deposit accounts and savings books are protected up to an amount of €100,000. This sum can increase to up to €500,000 due to special life events (e.g. retirement or redundancy). This sum is then paid out fairly quickly. Thus, once the Federal Financial Supervisory Authority (BaFin) has determined a compensation event, the money will be back with you in about five to seven days.
2.) Voluntary Deposit Insurance
In addition to this statutory protection, many banks have joined the voluntary deposit protection fund. This has existed since 1976 and is financed by payments from the participating credit institutions. To date, in all cases, the bank customers of member banks have been compensated 100%. However, this is not strictly guaranteed by law. The fund provides protection of up to 15% of the liable equity capital of the respective bank. This is usually at least €750,000. As seen in previous cases, however, the amount is usually significantly higher in reality. A list of institutions participating in the voluntary deposit protection fund can be found here.
Overview of your deposit security coverage
Statutory protection: €100,000, in exceptional cases up to €500,000
Members of the deposit protection fund: usually at least €750,000
How does the payout process work?
If a payout event occurs, depositors are notified immediately by the Compensatory Fund of German Banks (EdB).
The EdB is required to examine depositors' claims to compensation independently and to satisfy them within seven working days after the Federal Financial Supervisory Authority (BaFin) has determined that a payout event has occurred.
Depositors are not obliged to formally apply for compensation. Depositors must provide separate written justification for amounts subject to a temporarily higher coverage limit.
The depositor must provide evidence of the facts substantiating the claim. The EdB must refund such amounts within seven working days of receipt of the registration and evidence.
Note: This information is only applicable to investors with tax residency in Germany. The information provided above does not constitute tax advice and in no way replaces individual advice from a tax advisor. In case of doubts, please contact your tax advisor directly.