Depositguarantee

A deposit guarantee is a protection mechanism that ensures bank deposits are insured up to a specified amount, helping to maintain financial stability and protect small savers in the event of a bank failure. It is typically provided by a government-backed agency or a dedicated fund and is funded by contributions from participating banks, often with oversight by financial regulators. The exact scope and mechanics vary by country.

Coverage generally applies to basic bank deposits such as checking accounts, savings accounts, and term or time deposits held by individuals and small businesses in participating institutions. Investment products, securities, and some types of high-risk accounts are usually not covered. Some schemes also exclude deposits held through certain brokerages or subsidiaries, or limit coverage for non-residents.

Coverage limits and eligibility differ by jurisdiction. For example, in the United States the Federal Deposit Insurance Corporation insures up to $250,000 per depositor per insured bank. In the European Union, deposits are protected up to €100,000 per depositor per bank. The United Kingdom has its own scheme with a separate limit. Limits may apply per depositor category (such as individual, joint, or trust accounts) and can be applied per bank.

Operation typically follows a bank failure where the guarantee scheme or regulator initiates payout up to the limit, sometimes in coordination with a resolution process. The funds are intended to provide quick access to insured money while longer-term arrangements for the bank's liabilities are resolved. The system is designed to reduce panic and protect liquidity, but it is not a substitute for prudent risk management by financial institutions.

Limitations include gaps for non-covered products, complex ownership structures, and circumstances where banks are not members of the scheme.