Deposit Insurance

Banks lend out most of the money deposited with them, so if many depositors tried to withdraw at once, or if a bank made heavy losses, depositors could lose their savings. Deposit insurance guarantees that customers will get their money back, up to a limit, even if the bank collapses.

The limit and rules vary by country. Coverage is usually per depositor, per bank, and often applies to current accounts, savings accounts and time deposits, but not to investments such as shares or funds.

For example, if a country covers deposits up to 100,000 per person per bank, and someone has 80,000 in a bank that fails, they would be repaid the full 80,000. If they had 130,000 there, only 100,000 would be guaranteed.

Deposit insurance supports financial stability by reducing the risk of bank runs: if people know their money is safe, they are less likely to panic and rush to withdraw it. The schemes are usually funded by fees paid by banks. People with large savings sometimes spread them across several banks to stay within the coverage limits.