What does the Deposit Guarantee Fund (FGD) cover?

The FGD, a mechanism created to guarantee the investments of customers and small savers. We explain what it is and how it works

The Deposit Guarantee Fund (FGD) is a company with a separate legal personality that was approved by Royal Decree-Law 16/2011 of October 14, 2011. The public authorities promoted the creation of the Fund as a way or reorganizing the bank guarantee system for savings, thus ensuring that the savings of customers and small savers are guaranteed in the event that a bank becomes bankrupt.

The aim of the Deposit Guarantee Fund is to protect the customers of all its member institutions to offer them security and confidence. To do this, the Fund guarantees invested capital up to a maximum of €100,000 and it assumes the losses in the event of insolvency of any of its members.

The operation and structure of the Deposit Guarantee Fund are not complex, but due to its importance in the event of a bankruptcy involving any of the institutions in which we have our money invested, it's essential to understand it correctly. For this reason, in this article we tell you everything you need to know about the Deposit Guarantee Fund.

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Which companies are associated with the Deposit Guarantee Fund and how is it financed?

Since it is a publicly-backed entity, which was created by the Royal Decree-Law mentioned earlier, all banks and savings and loans ("cajas") and credit unions are required to join the Deposit Guarantee Fund.

It should be noted that the Deposit Guarantee Fund operates throughout the European Union, though each country has its own laws involving the maximum amount of capital guaranteed per bank and customer. This means, for example, that if part of your money is deposited in a foreign bank account, it is also guaranteed in the event of bankruptcy. The maximum guaranteed amount may be higher than the established maximum in Spain because in no country can the guarantee limit for the fund be lower than €100,000, but it can be higher.

The Deposit Guarantee Fund has a dual financing structure. On the one hand, when it was founded in 2011, the Fund absorbed the capital of the pre-existing guarantee mechanisms that disappeared when the it took effect. These guarantee mechanisms were the Deposit Guarantee Fund for Savings Banks, the Deposit Guarantee Fund for Banking Institutions and the Deposit Guarantee Fund for Credit Unions.

In addition to these capital funds, the FGD is financed through yearly payments from all member institutions. The amount to be paid by each one is calculated depending on the risk profile of each bank and the number of guaranteed deposits they have at their disposal. This means that the more deposits guaranteed by the FGD a bank has, the higher its risk profile and the higher its yearly contribution.

What products and amounts are covered by the FGD?

The purpose of the Deposit Guarantee Fund is to guarantee all amounts deposited into savings accounts, current accounts, certificates of deposit, as well as deposits in equities (for example, stocks or bonds) held in the credit institutions up to a maximum limit of €100,000 per institution and account holder. The deposits that are made in a currency other than the euro are guaranteed in the amount equivalent to €100,000, relative to the corresponding exchange rate.

Moreover, the Deposit Guarantee Fund covers other exceptional cases independently of the above coverage. However, we should note that this is only for three months from when the amount is paid or from the date on which the deposit has become legally transferable. This additional cover includes:

  • Deposits from transactions with real estate of a residential or private nature.
  • Deposits that derive from payments received by the depositor on a non-regular basis and that are linked to a marriage, divorce, retirement, dismissal, disability or death.
  • Deposits that are based on the payment of insurance benefits or damages that are the result of a crime or miscarriage of justice.

The guarantee of deposits and the guarantee of stocks are separate but mutually compatible, such that the same holder of deposits and stocks is eligible for both guarantees, always up to the limit of 100,000 euros per guarantee.

It is important to clarify that the FGD covers the deposits in stocks in the event of bankruptcy of the banking institution holding the deposit, but not the loss of value of the investments themselves (that is, if those stocks go down in the stock exchange or if the company that issued the stock goes bankrupt, the FGD doesn't cover those losses).

The remaining deposits, such as pension plans or variable-term investment funds, are not covered by the FGD, and therefore the money invested is not guaranteed in the event of bankruptcy.

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How does the Deposit Guarantee Fund make payments?

Before explaining the payment mechanism of the FGD, it's important to understand that the fund offers a maximum cover of €100,000 per institution and account holder. This means that if a person has €130,000 in a single bank, only €100,000 is guaranteed in the event of bankruptcy. However, if this same person distributes his/her money across two different institutions, the guarantee covers up to €200,000 [100,000 x 2 (institutions) = 200,000]. This person would also receive the same result if his/her money is in one bank but in an account with two account holders: the maximum guaranteed amount is then multiplied because each of the account holders has up to €100,000 guaranteed in the same bank.

If your bank declared bankruptcy and the Deposit Guarantee Fund had to refund you the money, as a customer you wouldn't have to do anything, nor would you have to pay anything. In this situation, the bank must send all customer details to the FGD, including the total amount deposited with the bank. Once the FGD receives this information and confirms that it meets all the requirements, it will contact you to request an account number that is not associated with the bankrupt institution in which to deposit the corresponding money.

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