Expats need to remain on their toes over compensation rights, despite the higher €100,000 deposit compensation limit now in force in all European Economic Area (EEA) member states as from 1st January 2011. While the raised limit is a welcome simplification for those banking in EU countries, research by ExpatMoneyChannel highlights that with the global economic outlook still fragile, there are still compensation pitfalls expats need to watch out for.
In the UK, for example, the compensation limit for those British expats lucky enough to have an account in the UK has increased from £50,000 to £85,000, which is the sterling equivalent of the €100,000 EU limit. However, at the same time separate compensation cover for customers with deposits in two merging building societies no longer applies. “This new pan-European requirement replaces the existing UK arrangement which has been in place since 2009, and which allowed for separate compensation cover for customers with deposits in two merging building societies,” confirms the FSA. While only ever a temporary measure, the rules were introduced following concerns that customers with savings in two merging societies could find their combined investment exceeded the £50,000 maximum deposit protection limit. The FSA says that raising the limit to £85,000 means it is less likely that depositors in two societies merging will now exceed the limit. However, ExpatMoneyChannel notes this change equates to a £15,000 compensation reduction for depositors in merging societies in the future.
Not everywhere is being generous
As expats are likely to have offshore accounts as well as onshore accounts, keeping an eye on changing compensation limits elsewhere is vitally important. Popular offshore jurisdictions such as the Isle of Man, Jersey and Guernsey’s deposit protection schemes all have a £50,000 limit, despite their links with the UK and have indicated no plans to follow the EU’s lead and increase compensation, although the Isle of Man is believed to be considering its options.
Indeed, jurisdictions that have a connection with the UK have been the cause of some confusion recently. In particular, expats reacting against the recent takeover of Bank of Scotland accounts in the Isle of Man and Jersey by Lloyds TSB Offshore, were under the impression that Bank of Scotland accounts in both jurisdictions were covered by the UK’s compensation scheme, rather than the local schemes. According to Mark Ashbey, an activist on offshore banking, this belief was perpetuated by information on the back of Bank of Scotland bank statements that made reference to the UK’s Financial Services Compensation Scheme (FSCS).
Gibraltar stands up with a bigger pot
Also while the UK’s compensation scheme does not extend to the Isle of Man, Jersey or Guernsey, it does extend to Gibraltar. Unlike the Isle of Man, Jersey and Guernsey, Gibraltar is not a Crown Dependency, but a UK overseas territory and so has a limited relationship with the EU via its UK overseas territory status. In short, this means that UK banks and building societies wishing to set up in Gibraltar can do so as a branch under EU passporting rules, which means they are covered by the compensation rules of the country where they are headquartered, rather than the local scheme. So, for example Gibraltar-based Leeds Building Society and Norwich & Peterborough are covered by the UK's compensation scheme as they are ‘branches’ and not locally ‘incorporated subsidiaries’. Although, as Gibraltar has decided to match EU deposit compensation limits of €100,000, there is no financial difference to consumers on whether accounts are covered by the local compensation scheme or the home regulator. Indeed, all financial institutions that are not locally incorporated are generally covered by their home regulator, i.e. the country or jurisdiction where they are headquartered. So, for example, as HSBC International in Dubai is only a representative office, it is regulated by the Jersey Financial Services Commission and any compensation would be via the Jersey scheme should the situation arise. Although it is possible for institutions to ‘top-up’ into the compensation scheme offered locally, if it is deemed better than the home country’s scheme.
Much lower limits elsewhere?
Following our research, ExpatMoneyChannel finds that the Isle of Man, Jersey or Guernsey are not the only jurisdictions with a lower compensation limit than EU countries. The Hong Kong Deposit Protection Scheme covers up to HK$500,000 which is £40,100 currency equivalent. In Jordan the deposit protection scheme covers up to 50,000 Jordanian Dinar (£44,100) and in Bahrain eligible depositors are protected up to an amount which is the smaller of either 75% of the combined total of eligible deposits held by a depositor or BD15,000 (£25,000). In Singapore the deposit protection limit is just S$20,000 (£9,750).
Of course, the daddy of all deposit protection schemes is the United States where depositors in insured banks are covered up to £156,000. It is even possible to use an online tool called EDIE (Electronic Deposit Insurance Estimator) to help make sure that all of your money in US bank deposit accounts is 100% FDIC-insured.
Based on our research, ExpatMoneyChannel has compiled our top tips to ensure you ask the right questions when it comes to making sure your deposits are covered.
- Ask your bank directly whether you are covered by a deposit compensation scheme and, if so, ask for the name of the scheme and contact details. Don’t rely solely on letters or websites as information may have been copied from corporate headquarters which may not be specific to your situation?
- Check specifically with the scheme operator as to whether the bank or society you have deposits with is a member and that you are covered. For example, in Gibraltar it is the Gibraltar Deposit Guarantee Board where you will find a list of scheme members. See link below for other jurisdictions.
- What is the scope of protection? Most deposit protection schemes will include retail deposits but companies or monies held in trust or bonds may not be protected, or will have lower protection limits. In addition, some types of deposits such as structured deposits may not be covered at all.
- Ask whether compensation is paid gross or net. For example, will loans with the failed deposit taker be netted off against any deposits you have with the same deposit taker society? The UK’s FSCS now has a ‘gross payout’ feature that ring-fences bank customers’ deposits so that outstanding loans or debts are not deducted from any compensation they are entitled to if they have savings and loans with the same institution, although you obviously still have to pay back your loan.
- What are the exact terms under which compensation is paid? For example, is it per depositor and what is the situation with joint depositors? Will any separate insurance you have be taken into account? Will any potential legal costs be taken out of the compensation pot?
- Do you have more than one account with the same overall bank? Most compensation schemes are per saver, per institution. If you are saving with two different banks or societies who ultimately have the same owner, then it will generally be classed as one institution. However, if the banks holding your accounts are authorised with the regulators as separate entities, despite being within the same group, then you will be able to claim compensation per bank. Ask your bank or building society whether they are part of an umbrella authorisation or separately authorised.
- Is there a limit on total compensation? For example, both the Jersey and Guernsey banking deposit compensation schemes cap the maximum total amount of compensation at £100 million in any five year period. If claims exceed this cap, compensation will be reduced pro rata. The cap also means that compensation in respect of any one bank cannot exceed £100 million.
- How is the scheme funded? Is there an annual levy on banks or are funds collected after the scheme has been triggered? Some schemes operate a mixture of the two. It is important to know, as it may affect the length of time you have to wait for any compensation you are due.
- How long will it take for compensation to be paid? Some schemes do not put a timeframe on compensation payments. Without a specified timeframe, corporate and legal wranglings may prolong compensation payments leaving depositors in financial difficulties. The UK’s FSCS has introduced new fast payout rules, whereby the majority of claimants will be compensated within seven days and the remainder within 20 days.
For a full list of compensation schemes per country go to The International Association of Deposit Insurers
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