How your money is kept secure

October 22, 2020

8 things you need to know to secure your bank and savings accounts

What happens when a bank goes bankrupt? How do you protect your savings? While many people wonder about the situation after the health crisis of coronavirus, here are the guarantees provided for your savings.

1. Identify the risks

While some people still hide their savings under their mattresses, the vast majority entrust them to banks. In the event of a financial crisis, this could be the hustle and bustle at bank counters or ATMs to collect cash.

As for assets, would they still be available? Similarly, like any business, a bank can go bankrupt. What happens if the bank is no longer able to repay its customers' deposits? It is to prevent these difficulties that the Deposit Guarantee and Resolution Fund (FGDR) was established in 1999. The primary mission of this body, of general interest, is to protect the customers of banks in the event of a failure of their bank.

The guarantee fund covers all banks and credit institutions operating in certain countries, including online banks and subsidiaries of foreign banks. Membership of the FGDR is a condition of the exercise of activity.

2. 100k Euros Proected Bank Assets

The FGDR deposit guarantee covers all amounts deposited in current accounts, current or term deposit accounts, book accounts, housing accounts, and savings plans, cash accounts of equity savings plans (EPPs), bank retirement savings plans (PER). If you have multiple accounts in the same institution, all your deposits are added up and compensated up to a maximum of 100,000 euros per customer (within 7 working days). For joint accounts, the balance is divided equally among the co-holders.

The guarantee applies separately for each bank. Therefore, if your total assets exceed 100,000 euros, open an account at one or more other establishments.

3. State-Guaranteed Booklets?

Money deposited on the A booklet (and blue booklet), sustainable and solidarity development booklet (LDDS) and people's savings booklet (LEP) is also protected. These deposits benefit from an independent guarantee. These are regulated and centralized savings books at the Caisse de dépôt et consignments to be used to finance public policy. They are added up and compensated up to 100,000 euros per customer per establishment. In practice, it is the FGDR that makes compensation on behalf of the state if necessary.

Tickets, coins, and items entrusted to your bank's safe department are not covered by the FGDR.

4. Exceptional Deposits Covered

The compensation limit of 100,000 euros is increased by an additional 500,000 euros for exceptional deposits made less than 3 months before the failure. For example, if you cashed in a large amount before your bank went bankrupt, you can be compensated extra for each event. These exceptional deposits may come from the sale of a residential property, the capital repair of personal injury, the capital payment of a pension benefit, an estate, a bequest, a gift, a compensatory benefit or a severance pay.

Money from personal injury repairs is covered with no amount limit.

5. Protection over Securities

You are also covered if you hold securities or financial instruments that have disappeared from your accounts and your bank or investment services provider is unable to return or repay you due to a cessation of payment. These may be securities in the form of shares or bonds, held directly or as part of an AEP; units or shares of mutual funds, such as units of Sicav or FCP, or certificates of deposit or tradable debt. These securities are compensated up to 70,000 euros (repayment within 3 months).

Again, the warranty applies per customer and by the establishment. Depending on the value of your securities, it may be relevant to be a customer of several establishments so as not to put all your eggs in one basket.

6. Compensation for a contractors' professional accounts

If you work as a craftsman, trader, professional… In your own name, you only have a single compensation limit of 100,000 euros for all your professional and personal accounts. It is different if you have created an EURL or an EIRL, that is, a separate legal entity from you. In this case, you benefit from two guarantees of 100,000 euros.

If you are concerned, it is prudent to hold a professional account in an institution separate from your personal accounts.

7. Sheltered life insurance via another fund

For life insurance contracts, it is the Life Insurance Guarantee Fund (FGAP), also created in 1999, that protects you. In the event of a failure of an insurance company, it is obliged to compensate policyholders within two months up to 70,000 euros (90,000 euros for disability or disability annuities and those resulting from death insurance contracts). If the value of your life insurance policies held in an institution exceeds this threshold, consider opening one or more other contracts elsewhere by capping payments at 70,000. Your funds will be protected in the event of a default, but other drawbacks will have to be faced. You will lose the tax anteriority on the new contracts, which can be penalised in the event of a buyout, you will have to face higher management fees due to the plurality of contracts, and finally, your beneficiaries will benefit from a less attractive tax estate if you feed a contract after your 70th birthday. Do your math.

The protection of the FGAP also covers financial capitalization products, such as the People's Retirement Savings Plan (PERP).

If you have an account in a traditional bank and another in a new bank of the same group, a single guarantee of 100,000 euros applies for all your deposits.

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