The EU Deposit Guarantee Scheme Explained

The EU-wide Deposit Guarantee Scheme (DGSD) is a fundamental piece of financial legislation designed to prevent bank runs and protect public trust in the banking system. This framework ensures that if any credit institution in the European Union fails—whether due to insolvency, market collapse, or mismanagement—its customers' savings are safe. Every EU member state, including Austria, must have a guarantee scheme in place that complies with this directive.

The core protection is a uniform, €100,000 guarantee limit per depositor per bank. This is a critical threshold: regardless of the currency in which the funds are held (EUR, USD, etc.), the compensation will be paid out in the local currency, up to the euro equivalent of that amount. This limit covers nearly all common deposit types, including standard current accounts, savings accounts, and fixed-term deposits. The rule applies automatically, ensuring a standardized level of protection across all 27 EU member states and the three EEA countries (Norway, Iceland, and Liechtenstein).

The compensation process is designed to be quick and straightforward. In the event a bank is declared unable to return deposits, the national guarantee scheme must make the guaranteed funds available to the depositors. Since 2016, the DGSD mandates that this payout must occur within seven working days of the bank's failure. This quick turnaround is vital for preventing financial hardship and maintaining liquidity for individuals and small organizations whose funds are suddenly locked away. The speed of the payout is a key factor in ensuring financial stability during a crisis.

Finally, it's important to understand how the limit is applied. The €100,000 limit applies to the depositor, not the account. Therefore, if an individual holds three different accounts (checking, savings, and a fixed deposit) at the same bank, the total of all those accounts combined is protected only up to €100,000. Conversely, if a person has accounts at two different, legally distinct banks, they are protected up to €100,000 at each institution, totaling €200,000. This structural protection helps build confidence by ensuring that even organizations or individuals holding large amounts can secure their funds by diversifying across different institutions.

More: Jens-Hinrich BINDER: “New European member states accede to a state-of-the-art set of financial regulations” (watch video or read)

 

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