We trust banks to look after our savings – indeed many people consider bank deposits to be ‘no-risk’ investments – but unfortunately they can and do fail, as recent headlines have reminded us.
Early March saw the collapse of two US banks, Silicon Valley Bank (SVB) and Signature Bank.
They both had niche customer bases, with SVB concentrated on tech and start-ups and was affected by rising interest rates, while Signature was quite heavily tied to cryptocurrency.
Later that month, Credit Suisse had to be suddenly taken over by rival UBS. It had faced a number of problems in recent years, including scandals, management issues and significant losses.
Nevertheless, the collapse of Switzerland’s second largest bank, founded in 1856, was a real blow for the country’s reputation as a stable financial centre.
The situation is not the same as 2008, though.
Back then, banks around the world were exposed to US sub-prime mortgages.
Today, tighter banking regulations require them to hold more capital and have stricter risk management, with the largest banks subject to rigorous stress tests.
Bank deposit guarantees are also much higher than they were at the start of the 2008 crisis, giving clients much more peace of mind.
That said, we should all be aware of how our savings are protected in the unlikely event of institutional failure. Not just in banks, but investment and insurance companies too.
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Savings protection in France
The EU directive on Deposit Guarantee Schemes (DGS) ensures that all member states have a scheme to compensate savers in the event of bank failure.
An update in March 2009 required banks to increase coverage to €100,000 by the end of 2010, and this still stands today.
France has something called the Fonds de Garantie des Dépôts et de Résolution (FGDR), to which all French-authorised banks contribute.
The FGDR covers bank accounts (current and deposit), savings plans such as the Plan d’Epargne Logement (PEL) and Plan d’Epargne Populaire (PEP), cash accounts associated with equity savings schemes (PEA), and pension savings schemes (PER).
These are added together and compensated up to a maximum of €100,000 per customer, per bank.
It also covers savings accounts such as Livret A, Livret Bleu, Livret Développement Durable et Solidaire (LDDS) and Livret d’Epargne Populaire (LEP), again added together with a €100,000 limit per customer per bank.
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Since the guarantee is per customer, jointly owned accounts are protected up to €200,000.
Note, however, that compensation is per banking group, not per bank.
Any compensation owed should be available within seven working days.
You may be eligible for an additional €500,000 guarantee if you have a ‘temporary high balance’. This can apply, for example, if you have just sold a property or received an inheritance – but it only covers the three months after the funds are received.
The FDGR also covers the ‘investor compensation scheme’ that guarantees French-authorised financial securities up to €70,000 per customer, per institution.
This excludes investments provided by portfolio management companies.
Savings protection in the UK
The UK’s protection level has not changed since leaving the EU, and the guarantee limit provided by the Financial Services Compensation Scheme (FSCS) is £85,000 (roughly matching the EU’s €100,000).
The rules are the same as in France: protection is per depositor (accounts in joint names therefore have £170,000) and per banking institution.
The scheme aims to pay compensation within seven days of a bank or building society failing, though complex cases will take longer.
The FSCS provides a protection limit of up to one million pounds for temporary high balances (up to six months).
So far, the only difference since Brexit is that protection for deposits held in EU/EEA branches of UK firms are now covered by the local deposit guarantee scheme in that country, not the FSCS.
UK offshore centres
Some British expatriates in France keep savings in the Channel Islands or Isle of Man.
Be aware that they are not covered by the UK scheme, even if they are divisions of UK banks.
The Isle of Man, Jersey and Guernsey depositor compensation schemes all provide protection of up to £50,000 per person for covered banks.
The Channel Islands aim to pay compensation within three months, and Isle of Man has no time limit. Their compensation funds are capped.
How to help yourself
If you have bank deposits over the guarantee limits, you can spread your savings out over more than one banking group for peace of mind.
You could also consider alternative options for your savings that provide a higher level of investor protection than banks can offer.
Assurance vie bonds, for example, are a popular and effective savings vehicle in France, which can provide tax and succession planning benefits.
If you opt for a Luxembourg policy, you benefit from its very robust protection for life assurance – your investment assets are protected should the insurance company fail.
Luxembourg’s investor protection regime is the strongest in Europe and stipulates that all clients’ assets are held by an independent custodian bank approved by the regulator.
The bank must ring-fence clients’ securities – investment funds, shares, bonds, etc – so they are held off the balance sheet.
If the bank fails, these securities remain in segregated client accounts, meaning 100% of the policyholder’s securities are protected.
Cash deposits are not protected, but cash held in monetary funds are treated as securities.
As always, savings and investment decisions should be based around your personal objectives, circumstances, time horizon and risk profile.
Take personalised, regulated advice on asset protection and a suitable, tax-efficient investment approach for your life in France.
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our, Blevins Franks, understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual is advised to seek personalised advice.
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