Wednesday 21 March 2018

Don't assume your deposits are protected

PEOPLE putting pension money into low-risk deposit funds to avoid the risks associated with stock market volatility have been warned that their money may not be covered by the bank guarantee scheme or the deposit protection scheme.

Financial adviser Vincent Digby of said large chunks of pension money have been switched out of equities investment into the safe haven of lower-risk deposit funds.

These are either demand or fixed-term and are provided by a range of banks both domestic and International.

Most clients assume that these deposit products are either fully covered by the bank's Eligible Liabilities Guarantee (ELG) scheme or by the State's deposit protection scheme that protects the first €100,000 -- or by some other national deposit protection scheme.

"This may not be the case, and this is where the risk lies. The deposit product is a contract between your life company and the bank you have chosen. It is therefore a corporate deposit and not a retail deposit."

ELG participants have both corporate and retail deposits covered, but the scheme has to be re-approved every six months and the situation regarding corporate deposits being covered may change in the future.

He added that corporate deposits may not qualify for the state deposit guarantee.

Mr Digby advised clients to find out exactly which institutions the deposits are with and what is the nature of the guarantee.

"You need to look through to the security and credit quality of the institution your funds are placed with.

"Get your adviser to help with this. Look at ratings, capitalisation, ownership structure and market capitalisation as part of the review," he said.

Irish Independent

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