How safe is the money we keep in the bank, and what happens if a financial institution is unable to return its customers’ deposits?
On the occasion of World Savings Day on October 31, this question takes on particular significance, as deposit protection is one of the key mechanisms for ensuring confidence in the banking system.
ΣΧΕΤΙΚΑ ΑΡΘΡΑ
In Cyprus, the maximum guarantee amount is €100,000 per depositor and per licensed credit institution. However, this limit is subject to conditions, exceptions, and special provisions that determine which funds are covered and under what circumstances.
How It Works
Protection is provided through the Deposit Guarantee and Resolution System for Credit and Other Institutions, which has been in operation in Cyprus since 2000.
Its purpose is to compensate depositors in the event that a participating credit institution is unable to return their funds, as well as to finance specific resolution measures.
The €100,000 limit applies to the total of eligible deposits held by an individual at the same credit institution and includes accrued interest.
This means that the guarantee does not apply to each bank account separately, but to the total deposits of the same person at the same bank.
For example, according to the Central Bank’s clarifications, if someone holds €20,000 in a checking account and €85,000 in a time deposit at the same bank, the total amount is €105,000. If the System is activated, the guaranteed compensation is limited to €100,000, provided there are no outstanding obligations to be offset.
Conversely, when an individual holds deposits at different licensed credit institutions, the limit is assessed separately for each institution.
What Applies to Joint Accounts
Joint accounts, which have more than one account holder, are treated differently.
According to the Central Bank, the amount attributable to each joint account holder is considered a separate deposit. As a general rule, the balance is divided equally, unless otherwise specified in the relevant agreement.
A joint account held by two individuals may therefore be covered up to a total of €200,000, provided that each individual’s share, together with their other deposits at the same bank, does not exceed €100,000.
For example, for a joint account of €180,000 with two equal beneficiaries, €90,000 is allocated to each. However, if one of them has an additional personal deposit of €20,000 at the same bank, the total amount to which they are entitled reaches €110,000, and their guaranteed compensation is limited to €100,000.
When More Is Covered
A lesser-known provision applies to cases where the amount of a deposit temporarily increases due to specific events.
In Cyprus, additional protection of up to €300,000 is provided, in addition to the basic guarantee, for a period of up to 12 months, when the relevant conditions are met.
This provision applies, among other things, to funds derived from real estate transactions involving private residences, inheritances, insurance policy payouts, retirement benefits, and certain severance or death benefits.
This additional protection is not provided unconditionally. Documentation of the funds’ origin is required, and the coverage period is calculated in accordance with the applicable rules.
Which Deposits Are Excluded
The System covers, subject to the applicable exceptions, deposits held by individuals and legal entities, including companies.
Protection also applies to deposits in foreign currencies, with compensation paid in euros.
However, not all financial products offered through a bank are covered. Exceptions include specific categories of deposits held by financial and investment institutions and insurance companies, as well as certain debt securities issued by banks.
Furthermore, the existence of a loan does not automatically result in the loss of the guarantee. When calculating compensation, the depositor’s overdue debts to the specific credit institution are taken into account, provided there is a right of setoff.
When Is the Money Returned?
Once the Deposit Guarantee Scheme is activated, the relevant compensation amount is expected to become available within seven business days from the date on which the deposits became unavailable.
Activation requires a determination by the Central Bank or a court proceeding as provided for by law. Subsequently, instructions regarding compensation for eligible claimants are published.
For deposits exceeding the guaranteed limit, further compensation may be available through the credit institution’s liquidation process; however, full recovery of the excess amount is not guaranteed.
What depositors should check
The €100,000 threshold applies throughout the European Union. However, not all banks operating in Cyprus are necessarily covered by the Cypriot system.
For example, branches of banks headquartered in another EU member state are covered by their home country’s deposit guarantee scheme.
Depositors may request the required information sheet from their bank, which specifies the applicable deposit guarantee scheme, the coverage limit, and the main exceptions.
Deposit insurance is an essential safety net, but it does not mean that any amount held in a bank is automatically and fully guaranteed. Understanding the limits and conditions is the first step toward protecting your savings.
