What deposits are guaranteed?
The deposit guarantee only protects deposits, i.e. funds in a bank account. As a rule, deposits by all depositors – meaning account owners – are covered by the deposit guarantee scheme. It is not tied to the depositor’s citizenship or place of residence. The deposit guarantee scheme covers deposits in euros as well as other currencies.
What is a deposit?
A deposit is a demand deposit account or fixed-term account (fixed-term deposits) opened in the depositor’s own name.
Examples of deposits include the following:
- Current accounts for day-to-day use
- Savings accounts (including long-term savings accounts)
- Home savings incentive accounts (ASP)
- Deposits made on behalf of another party, such as client asset accounts
One of the characteristics of a deposit is that the deposit bank has provided the depositor with a deposit account agreement as well as the general terms and conditions of deposit accounts.
Only deposit banks are permitted to take deposits. Consequently, only deposit products offered by deposit banks may be called deposits. Deposit banks have an obligation to inform their customers annually about the basics of deposit guarantees.
A majority of Finns (56%) are aware of the fact that there is a guarantee scheme for bank deposits in Finland. This was revealed by an awareness survey commissioned by the FFSA in 2019.
What products, accounts or deposits are not within the scope of the deposit guarantee scheme?
The deposit guarantee scheme does not cover investments, the payment accounts of payment service providers or deposits related to criminal activities.
Investments
Accounts that are by nature investments do not fall within the scope of deposit guarantee. The deposit guarantee scheme is not intended to cover high-risk investments. Examples of investments include the following:
- Securities, such as shares and fund units
- Banks’ equity instruments, such as OP’s profit shares and POP shares
- Money market deposits, certificates of deposit issued by banks and other money market instruments
Investment-linked deposits and equity savings accounts are partly protected
In some cases, an investment-linked deposit falls partly within the scope of the deposit guarantee scheme. For a deposit to fall within the scope of the deposit guarantee scheme, the interest on the deposit must be easily calculated in advance.
An investment-linked deposit refers to a deposit product in which the interest rate is fully or partially tied to the performance of an underlying instrument. The underlying instrument is typically a basket of shares. Additional interest refers to interest or return that is tied to the performance of the underlying instrument rather than the passing of time. Guaranteed interest refers to a predetermined interest rate that is tied to the passing of time.
The capital and guaranteed interest of an investment-linked deposit are covered by the deposit guarantee, but the additional interest on an investment-linked deposit does not fall within the scope of the deposit guarantee.
The funds in an equity savings account fall within the scope of the deposit guarantee. Shares held under an equity savings account agreement, on the other hand, are investments that are not covered by the deposit guarantee.
Payment accounts with a payment service provider
Payment service providers are payment institutions, electronic money institutions and electronic money issuers as referred to in the Act on Payment Institutions. A payment service provider is not a deposit bank, and therefore it does not receive deposits. Therefore, the payment accounts of payment service providers are not covered by the deposit guarantee scheme in the event of the payment service provider’s insolvency. The customer funds of the payment service providers are safeguarded in case of the payment service provider’s insolvency by means other than the deposit guarantee. The payment service provider must hold the customers' funds separately so that the customers’ funds can be distinguished from the payment service provider’s own funds in the event of the payment service provider’s insolvency. The payment service provider holds its customers’ funds, for example, by depositing them in a deposit bank. In the event of the payment service provider’s insolvency, no compensation for funds in the payment accounts will be paid from the deposit guarantee scheme, but the customers’ funds would be paid to the customers as part of normal insolvency proceedings, such as bankruptcy.
After the payment service provider has deposited the customers’ funds in a deposit bank, they are covered by the deposit guarantee scheme in the event of the deposit bank’s insolvency.
Deposits related to criminal activities
The deposit guarantee scheme does not cover deposits that are based on receiving offences and money laundering offences. If a preliminary investigation or legal proceedings concerning a criminal offence are pending, compensation under the deposit guarantee scheme is not paid in the event of the bank’s insolvency until a court has issued a legally valid decision.
Whose deposits are covered by the deposit guarantee scheme?
As a rule, the deposits of all depositors are protected under the scheme. The depositor is the person designated as the account owner in the account agreement. The deposit guarantee scheme is not tied to the depositor’s citizenship or place of residence.
Examples of depositors include the following:
- Private persons
- The estates of deceased persons
- Various types of organisations: companies regardless of their company form and size, registered associations and foundations
Whose deposits are not covered by the deposit guarantee scheme?
Only the types of depositors that are specifically mentioned in the relevant legislation are not covered by the deposit guarantee scheme. The following categories of depositors are not within the scope of the deposit guarantee scheme:
- Public authorities, including the State and its institutions, municipalities and joint municipal authorities and the Government of Åland
- Credit institutions, investment firms, fund management companies, alternative investment fund managers and financial institutions when the deposit is made on their own account (the client asset accounts of these types of depositors are covered by the deposit guarantee scheme)
- Insurance companies, insurance associations, pension foundations and insurance funds
If the identity of the owner of a deposit cannot be determined, deposit guarantee compensation cannot be paid.
How large is the compensation amount?
The starting point for the amount of deposit guarantee compensation is the balance of the account. Funds that are in the process of being transmitted at the time, i.e. the depositor’s incoming transfers, also count towards the compensation amount, as does the interest accrued on the account. The Financial Stability Authority receives all of this information directly from the banks.
The calculation of the deposit guarantee compensation is based on all of the depositor’s deposits with the insolvent bank regardless of the number of accounts. However, the maximum compensation payable to each individual depositor is limited to EUR 100,000. The maximum compensation amount is depositor-specific. Compensation paid to one spouse does not affect the compensation payable to the other, for example.
The maximum compensation amount is also bank-specific. If a depositor has accounts with multiple banks, the EUR 100,000 maximum compensation amount applies to their deposits in each bank. From the perspective of deposit guarantees, the OP Group, the POP Bank Group and the Savings Banks Group are each considered to be one bank. This is due to the fact that the banks belonging to these groups are fully or partially liable for each other’s commitments and obligations within the group.
For accounts under joint ownership, each account owner has their own maximum compensation limit of EUR 100,000. A person who merely has the authority to use an account is not considered a joint owner. The account owners are always specified in the account agreement.
When the deposit guarantee compensation is calculated, the amount of funds in the joint account is evenly divided between the joint owners and the deposit guarantee compensation is separately allocated to each owner’s share. For example, if two depositors who are spouses only have a joint account with a balance of EUR 200,000 in a bank that has been declared insolvent, both will receive deposit guarantee compensation in the amount of EUR 100,000.
A self-employed entrepreneur (a sole proprietor) does not have an independent deposit guarantee for their business-related deposits. The deposit guarantee of a self-employed entrepreneur therefore includes both the private deposits of the person who owns the sole proprietor and the deposits associated with the business activities of the sole proprietor.
Assets obtained from the sale of a residence are an exception to the main rule on the guaranteed amount. The deposit guarantee covers the assets obtained from the sale of one’s own residence in full if the assets were deposited on the account no more than six months before the bank became insolvent and if they are intended for the purchase of a new residence for the depositor's own use.
An estate is considered a separate depositor that is independently covered to a maximum of EUR 100,000 regardless of the number of estate distributees. The personal deposits of the estate’s distributees do not affect the amount of the estate’s deposit guarantee compensation, nor do the deposits of the estate affect the distributees’ deposit guarantee compensation.
The estate’s deposit guarantee is independent until the assets on the estate's account have been entered in the account(s) of the distributee(s), or until they are in the payment transmission process. The estate distribution agreement alone does not affect the estate’s deposit guarantee.