One of the many negative economic news we have come across this year is the failure and subsequent intervention of several U.S. banks. Although this is not a common situation, it makes many Spanish savers wonder if their money is protected in case their bank fails.
Below you can learn in detail all the assumptions and details if a bank fails, but as a quick answer we will tell you that you can breathe with relative peace of mind: your money is protected against a possible bankruptcy, although only up to €100,000. And that is thanks to the Deposit Guarantee Fund (or FGD). Let’s see in detail what this Fund is and how it works and how it acts in case your bank or savings bank goes bankrupt.
The Deposit Guarantee Fund, in charge of protecting money if a bank fails
In Spain, as in most countries in the world, there is a body that covers customers’ losses in the event that their financial institution shows signs of insolvency.
It was created back in 1980 and currently complies with the requirements of European legislation, which has been tightened in recent years in order to provide a more secure framework for the institutions’ customers.
In addition, the Deposit Guarantee Fund is regulated by the Royal Decree on deposit guarantee funds for credit institutions (RD 2606/1996 of December 20, 1996).
Is this Fund of public origin? This is how it works
Contrary to what many people think, the Deposit Guarantee Fund is not public. It is formed (and financed) by most of the savings banks, banks and credit cooperatives operating in Spain. It has its own legal personality and full capacity to carry out its purposes, and its headquarters are located in Madrid.
The Fund is managed and administered by a Management Committee made up of 17 members divided as follows:
- 11 members from private financial institutions
- 1 representative of the Ministry of Economy
- 1 representative of the Ministry of Finance
- 4 representatives appointed by the Bank of Spain
According to the Bank of Spain’s website, all financial institutions registered in the Register of Credit Institutions are obliged to join this Fund. It does not matter whether they are Spanish banks or savings banks or branches authorized in a non-EU country, if the guaranteed deposits or securities are not covered by a guarantee system in their country of origin or if the guarantee is insufficient. There is no excuse when it comes to protecting your money.
The only ones for which membership is voluntary are all those branches of banking institutions already authorized in another EU member country, since the same guarantee exists in their home country in the event of bankruptcy.
What and how much money exactly does the FGD cover if a bank fails?
The Deposit Guarantee Fund covers money, securities and other financial instruments offered by credit institutions operating in Spain. This includes bank accounts and deposits, but does not cover capital invested in mutual funds or shares. The reason? In these cases, the bank is only the depositary and the bank’s failure should not affect their value.
As for the money, as we have already mentioned, the Fund has a first guarantee that ensures the return of up to 100,000 euros per holder in the event of the bank’s failure. Can it be more? Yes, although it depends very much on the situation and may not be the case.
Financial tip:
If we live as a couple or family, keeping the money in two accounts with different holders is the best way to cover the return of up to €200,000.
For securities and other financial products that customers contract with the entity, there is a second guarantee. In this case, as in the case of money, the amount covered is up to €100,000.
In addition to these two guarantees, the Fund also insures money received for the purchase and sale of homes (understood as residential real estate), as well as other private transactions such as payments received in connection with marriage, divorce, retirement, dismissal, disability or death and inheritance, the collection of insurance benefits and compensation for damages as a result of a crime or a miscarriage of justice.
How long does it take for the Deposit Guarantee Fund to return the money?
It is understood that this is an extraordinary situation on which many people depend, so in general it does not usually take very long. However, the time depends on the type of asset to be recovered.
In the case of money deposits (and let’s remember, always less than 100,000€) their return is fixed in ten working days, although from 2024 this wait will be reduced to seven days.
Financial products, on the other hand, may take a little longer. This is because their greater complexity requires a more conscientious study and assessment by the Fund. However, these products can be returned within a maximum period of three months.
Your money is also protected if your bank is of foreign origin.
There are several foreign banks operating in Spain and having your money with them is not a problem in case of bankruptcy, as long as they operate through a Spanish subsidiary, which allows them to have a national banking record and to be part of the Deposit Guarantee Fund.
If, on the other hand, we operate with a foreign bank without a branch, it is important to know that our money is also protected, although in this case we will have to analyze the characteristics of the Fund of the country where the entity operates. In the case of European Union banks, all of them have the same guarantee as Spain, which guarantees a minimum of 100,000 euros, regardless of the country.
Does the Fund have enough money to face the failure of any bank?
The theory says yes. After all, the Deposit Guarantee Fund is created by the mandatory contributions made by all banks operating in Spain and is designed to cover that hypothetical €100,000 of each holder of the failing bank.
The figures, however, tell us otherwise. In 2022, the National Fund had some €7,128.7 million. With some quick calculations we see that this figure would be enough to cover the failure of small or medium-sized entities, but it could be insufficient if the affected is a large bank or several entities at the same time.
In addition, an important fact you should know is that it is not necessary for your bank to fail for the Fund to act. If your bank has any problem and the Bank of Spain considers that it is not able to reimburse its clients’ money, the Fund will act to take care of your savings.
Tips to avoid losing money if your financial institution goes bankrupt
Before starting, do not panic. None of the relevant entities within the banking sector in Spain present serious risks of bankruptcy. And if, by a twist of fate, something should happen, you know that your capital need not be at risk. Even so, we give you some guidelines to avoid any scare:
Have an alternative account in another entity or some cash.
The maximum time between the bankruptcy being declared and you being able to get your money back is ten working days, although it will soon drop to seven. If you are one of those people used to using your credit card for everything, it is advisable to have some cash at home or an account with some money in another bank to be able to spend that period with complete peace of mind. An excellent option is to take advantage of the benefits offered by direct credit, which will allow you to easily get more than enough money to get through this time without having to pay opening fees.
Research where you keep your money
Although most of the institutions you can find today are trustworthy, the rise of online banking has opened the door to a new world. So, if it doesn’t ring a bell or you have any doubts, find out first if it is affiliated to the FGD or, at least, is registered in the EU.
Ensure access to shares and pension plans
They will not be affected (or at least they should not), but if you manage all these issues directly with the bank you may encounter delays. Having an alternative management channel for these types of investments is usually the most appropriate, especially if we plan to use or operate them in the short term.
Keep all documentation about your accounts and financial products.
As we have already mentioned, as long as you do not exceed the limits of 100.000€ there is nothing to worry about. But in the unlikely event that they need some kind of accreditation, having the documentation at hand could speed up the recovery times a little.
We hope we have solved your doubts and we invite you to continue reading more information about your personal finances.