Thursday 23 November 2017

Just how safe is my money?

John Cradden highlights good ways to manage your bank accounts

OVER the past year, Irish households have been doing a bit of a run on the Irish banks, withdrawing huge amounts of their cash at a ferocious rate.

Central Bank figures show that, between October 2010 and July 2011, nearly €4.5bn was extracted from Irish banks by households here.

Given the unprecedented financial and economic upheaval over the past 12 months, particularly since the EU/IMF bailout, it's understandable that many consumers are anxious to ensure they don't lose what spare cash they have.

But is this fear misplaced, even irrational? After all, there are not one, but two schemes that guarantee you will not lose whatever cash you have in Irish banks.

However, one of them is slated to end in a couple of months, but might still be extended, while the other one has no end date.

So what are they?

The first is the controversial blanket bank guarantee scheme, which many argue was the key factor in creating all the banking trouble we've had, but that's another story.

It was introduced over three years ago, but is now termed the Eligible Liabilities Guarantee Scheme (ELGS).

The ELGS, which is based on two pieces of legislation that were implemented in late 2009, protects all deposits with certain financial institutions. It is due to expire on December 31 this year.

Under new rules governing EU deposit guarantee schemes, the Government has to ask the European Commission for an extension to the ELGS every six months, as it has been doing every six months since June 2010.

The second is the Deposit Protection Scheme (also referred to as the Deposit Guarantee Scheme), which has been in place for some time and has no end date.

So what's the DPS about?

The Deposit Protection Scheme, which has been in place since 1995 (as was required by EU rules), guarantees individual deposits up to €100,000 at any bank, building society or credit union regulated by the Financial Regulator.

Since 1999, you could only claim a maximum of €20,000 under this scheme, but in September 2008 this limit was increased by the Government to €100,000, and credit unions were included for the first time, too.

The scheme applies per person, per institution. This means that the most you can claim is €100,000 for each institution in the scheme, but if you have deposits with more than one of them, you can claim up to €100,000 per institution.

The scheme applies to: current accounts; demand deposit accounts; term deposit accounts; share accounts and deposit accounts with building societies; and share accounts and deposit accounts with credit unions.

Its reach extends to all regulated Irish and non-Irish deposit-taking institutions in Ireland.

So what's the difference between the DPS and the ELGS?

The DPS covers you for any deposit per institution up to €100,000, but if you have more than €100,000 deposited in the same institution, then any amount above €100,000 will be covered by the ELGS, at least until December this year.

However, the ELGS only covers seven institutions: AIB, Anglo Irish Bank, Bank of Ireland, EBS, ICS Building Society, Irish Life and Permanent, and Irish Nationwide.

Does it matter with the ELGS what type of account I have?

No, the ELGS still applies to all types of accounts, including current accounts. It also applies to fixed-term deposits in qualifying institutions, which are protected in full for up to five years.

The first €100,000 in any one institution is covered by the DPS in any case, but whether any balance above €100,000 is covered depends on whether your institution was a member of the ELGS when you deposited your money.

In other words, you must have placed your deposit with one of these seven institutions after they joined the scheme.

Not all of the seven institutions joined the ELGS at the same time. You should check with your institution if you are not sure.

What does the possible expiration of ELGS mean for me?

Nothing if you have less than €100,000 deposited in any one institution, as you are covered by the DPS anyway.

If you do have more than €100,000 in any one institution, and as long as that institution is one of the seven covered by the ELGS, the balance above €100,000 is covered at least until December 31, 2011.

Whether it will continue to be covered after that depends on whether the Government decides to apply for another extension or, as it hinted recently, lets the scheme expire at the end of the year. But even if the ELGS expires, is the DPS still in place?

Yes, it is more or less a permanent scheme, as required by EU rules, with no end date.

Irish Independent Supplement

Promoted Links

Promoted Links

Business Newsletter

Read the leading stories from the world of Business.

Also in Business