Details on the Deposit Guarantee Scheme. How safe is my money when deposited in a Bank with a bank licence?

When searching for the highest interest rates for savings deposits, it is important to ensure that the financial institutions you choose have sufficient bank licensing and are authorised to operate in the Netherlands. Obtaining a licence ensures that the bank complies with all relevant laws and regulations set forth by the Dutch financial regulatory authorities. It ensures that the institution is credible and can be trusted to hold customers' savings. Accounts/deposits at a licensed bank may fall under what is called the “Deposit Guarantee Scheme”, in which case customers receive additional protection.

The European bank licensing process acts as a critical safeguard for financial system stability. It ensures that only well-capitalised and compliant institutions enter the market. This rigorous assessment applies uniformly to all banks, regardless of their business model – traditional or technologically innovative(including neo banks). The objective is to foster public confidence, not to stifle competition or hinder advancements in the banking sector. In other words, a bank with a european banking licence signifies that the European government guarantees that customers can trust the bank.

Deposit guarantee schemes (DGS) function as a risk mitigation mechanism within the European Union (EU) banking system. It was established in 2014 through Directive 2014/49/EU. The scheme requires European Union countries to introduce laws setting up at least 1 DGS that all banks in the country must join.The scheme ensures that banks offer a predefined level of compensation to eligible depositors in the event of a bank failure.

Here's a breakdown of the key aspects:

• 1. Protection: DGS reimburses depositors for a set amount (currently €100,000) if their authorised bank becomes insolvent and is unable to fulfil its deposit obligations.
• 2. Funding: The scheme is entirely financed by contributions from member banks, ensuring no reliance on taxpayer funds.
• 3. Financial Stability: DGS aims to prevent bank runs by providing depositors with confidence in the safety of their funds, even during periods of financial instability. This discourages mass withdrawals that could further exacerbate a bank's difficulties.
• 4. Evolution: The EU has progressively increased the guaranteed deposit amount over time, reflecting a commitment to continuously strengthen financial consumer protection.

In the Netherlands, any entity intending to conduct banking activities requires a valid authorization, referred to as a banking licence. For banks headquartered within the Netherlands, the licensing authority is the Dutch central bank, De Nederlandsche Bank (DNB). However, this licence is issued by the European Central Bank (ECB) for institutions whose registered office lies outside the Netherlands. The issuance of a licence is mandatory for all banks to commence operations, with exemptions only in specific circumstances outlined by law.

The Dutch banking system offers a deposit guarantee scheme that safeguards depositors in the event of a bank failure. On the Dutch government's behalf, De Nederlandsche Bank (DNB) administers this scheme. This scheme provides a vital layer of protection for individuals and most businesses operating within the Netherlands.

Here's a breakdown of the key aspects:

• 1. Automatic Coverage: All current and savings accounts held at participating banks automatically qualify for deposit guarantee protection.
• 2. Protection Limit: Each depositor is insured for up to €100,000 per bank. This means if your bank fails, you will be reimbursed for this amount, regardless of the number of accounts you hold.
• 3. Funding Mechanism: The deposit guarantee scheme is financed entirely by the participating banks themselves, ensuring no reliance on taxpayer funds.
• 4. Eligible Accounts: A wide range of deposit accounts qualify for protection, including checking accounts, savings accounts, fixed-term deposits and certain investment accounts linked to deposits.

It is important to remember that some banks may appear to be different banks but are actually one bank operating under different names in different regional markets. Therefore, all your deposits at the same credit institution are “aggregated” and the total is subject to the limit of €100,000.

The DNB has a register of all the Dutch banks protected by the Dutch deposit guarantee scheme and the various trade names they use. This is helpful to get an overview of all covered institutions. If you cannot find your institution in the register then it may be covered by a foreign deposit scheme, and you should contact the institution directly to find out more information. Be aware that institutions can still offer products that do not fall under the guarantee scheme.

In the event of a bank failure in the Netherlands, you can be rest assured that the Deposit guarantee scheme would protect your deposit. De Nederlandsche Bank (DNB) will guide you through the recovery process. They will send you a letter with instructions. Within a week, DNB will launch a secure website where you can log in using your DigiD. To recover your funds, you'll need an account at another bank. This website provides a clear overview of all your funds in the failed bank. Recovering your money is simple: log in with your DigiD, provide your new bank account details, and initiate the transfer. The total amount will be deposited in your new account within several business days. The maximum term of pay-out is 20 working days, plus 10 working days in exceptional circumstances.

The process for recovering your deposit in the event of a bank failure varies between countries and you should read the deposit scheme document for your particular bank and country to retrieve the exact information necessary.

While the deposit guarantee scheme may protect your savings if one bank fails, what happens if multiple banks fail and the DGS is overdrawn? You can rest assured that the DNB spreads the cost amongst the remaining healthy banks. DNB tries to recover these costs from the failed banks’ assets, eventually returning any surplus funds to the healthy banks and the deposit guarantee fund.

What if all the banks fail in the country? Obviously the government can be relied upon to bail out the banks and restore deposits to everyone in due time. But the question is how reliable is the country? That is why it is important to save and invest your deposits in a country that is stable and has a high credit rating by reputable rating agencies. Below is a list of the highest rated EU countries in the world:

Additionally, by spreading deposits across banking institutions you can further optimise your risk free interest rate. Find out which banks offer the best risk free interest rates in our previous article here. Would you like to have always up-to-date access to all of your savings accounts in a unified overview combined with all your other assets? Then make sure to download the Figy app.