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Know Your Limits

We have all heard about the collapse of institutions that were seen as “too big to fail” in recent years. But what level of investor protection is available, within Europe, for people’s savings?

Do you know what level of protection you have if  there are problems with your bank? Do you know if you would get your money back? For peace of mind it is important to understand what investor protection you have with each of your banks, and how it this operates.

I thought it would be a good idea to summarise some of the investor protection limits in a couple of jurisdictions within Europe.

European banks

Each EU country has a deposit guarantee of  €100,000. Should a bank fail, then the national deposit guarantee scheme refunds savings up to  €100,000. Savings above this level could be lost if there are insufficient funds available from the winding up of the banks’ assets.

Deposits are covered per depositor. A couple, with a joint bank account, would  have up to  €200,000 protected.

The guarantee is based on the bank and not the indivdual bank accounts. If someone had  €100,000 in a current account and €100,000 in a deposit account, at the same bank, then half the savings are protected. This also applies to banks in the same banking group and so depositors may find that , although the banks have differing names, they are in the same group and will be subject to the guarantee up to €100,000 only.

Banks in the Isle of Man and Guernsey

The  limit in the Isle of Man, and Guernsey is lower at just £50,000.

Additionally, the compensation is capped. In Guernsey the maximum compensation is £100 million over any five year period. If claims exceed this, compensation will be reduced pro rata. The Isle of Man has a cap of  £200 million.

Protecting large deposits

Savers that have large deposits often have several bank accounts to spread the risk.

However, it is possible to move large savings into arrangements which provide a higher level of investor protection than banks. Since 2008, investor protection has become a high priority for savers and there are alternatives to supplement the bank guarantees.

Policyholder Protection

Large deposits can be held in secure, deposit based funds, that are covered by policyholder protection legislation. Let’s look at two well-known , secure, juristictions and the additional protection they offer.

Isle of Man

The Island operates a policyholder protection scheme which would, in the event of a Life Insurance company being unable to meet its liabilities, pay affected policyholders up to 90% of amounts owed to them by way of compensation. This is funded by  a levy of up to 2% of  all funds linked to policies in the protection scheme.

There is no formal requirement for an Isle of Man insurer to place policyholder assets with a custodian, although in practice for operational reasons it is often pragmatic for the life office to do so.


A Guernsey life insurance company is required to deposit 90% of policyholder assets with an independent trustee and custodian(s). This ensures that there is a legal separation of policyholder assets from the insurance company’s shareholder assets and creditors. In practice, companies normally hold assets in trust at a level exceeding the minimum of 90% of liabilities.

The assets must be held in trust to meet the obligations of the company to the policyholders and generally for the benefit of the policyholders and are not available to meet any other obligations of the company, such as those towards general creditors.

Spreading Risk

Spreading risk does not just apply to the diversification of asset classes (typically, an investment porfolio will have a spread of deposits, government bond and equities), it should also take into account the security of the institution that is holding the investments.

For example, the Isle of Man and Guernsey offer additional security for investors, whilst allowing investors the wide spread of asset classes they already have access to.

We have all become familiar with the term “ Stress Testing” when it comes to checking the strength of financial institutions.

When was the last time you undertook your own “Stress Test” on your investments?

About the Author: Christopher Lean is a consultant at Square Mile Financial Services ( ) and an Associate of the Personal Finance Society (Chartered Insurance Institute). 

NB. This article is for information only and should not be seen as investment advice. Taxation and investment advice should always be taken from appropriately regulated and qualified tax and investment advisers.


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