Questions & answers on deposit protection and investor compensation (2024)

In Germany, all public-sector savings banks (Sparkassen), state banks (Landesbanken) and state building and loan associations (Landesbausparkassen) as well as cooperative banks (Genossenschaftsbanken) are members of an institutional protection scheme (IPS). The objective of the institutional protection schemes in place is to protect their member institutions from insolvency and liquidation and prevent compensation events from occurring at member institutions to ensure that their customers are indirectly protected against losing all their deposits.

The institutional protection schemes offered by the German Savings Banks Association (Deutscher Sparkassen- und Giroverband – DSGV) and the National Association of German Cooperative Banks (Bundesverband Deutscher Volksbanken und Raiffeisenbanken – BVR) are recognised by BaFin as deposit guarantee schemes under the German Deposit Guarantee Act (Einlagensicherungsgesetz – EinSiG). If a compensation event still occurs at an institution that is part of an institutional protection scheme offered by the DSGV or the BVR, the schemes grant customers a legal right to compensation (for more details on the scope of compensation, see Questions: What is covered by the German Deposit Guarantee Act? What funds are covered by the statutory deposit guarantee schemes? and What funds are covered by the statutory investor compensation schemes?)

Liabilities from securities transactions that are payable to customers are covered by the statutory investor compensation schemes. This includes funds owed to investors in connection with securities transactions (e.g. dividends, distributions or disposal proceeds).

The schemes also protect your claims against your bank for the return of the securities held in custody for you. You are eligible for compensation if an institution has embezzled or misappropriated your securities or funds and is no longer able to return them.

If your insolvent bank has misadvised you, however, the investor compensation schemes will not apply. You will thus not be compensated for any lost profits or losses incurred due to a misguided investment strategy.

Under the Deposit Guarantee Act, all banks are required to guarantee deposits with them through membership of a statutory compensation scheme or a recognised institutional protection scheme. Institutions are required to join a deposit guarantee scheme before they can be authorised to conduct business.

Guarantees under the Deposit Guarantee Act cover customer deposits of up to €100,000 per institution. Subject to certain conditions, coverage can be increased to up to €500,000 for a period of six months after deposited amounts are credited. Such amounts may be received in connection with certain life events (this list is not exhaustive):

• amounts relating to the sale of private residential properties,
• amounts that serve social purposes laid down in the law and are linked to certain events in the depositor’s life, such as marriage, divorce, reaching retirement age, retirement, dismissal, redundancy, birth, illness, need for nursing care, invalidity, disability or death,
• amounts relating to the payment of insurance benefits,
• compensation for criminal injuries or wrongful conviction.

If a depositor wishes to protect a deposit in excess of €100,000, he must provide evidence justifying his claim.

Institutions are legally required to guarantee not only deposits but also their liabilities arising from securities transactions (see Question: What funds are covered by the statutory investor compensation schemes?) through membership of an investor compensation scheme. Securities trading firms (such as securities trading banks, financial services providers, asset management companies) guarantee their liabilities arising from securities transactions through membership in the Compensatory Fund of Securities Trading Companies (Entschädigungseinrichtung für Wertpapierhandelsunternehmen – EdW).

Under statutory investor compensation schemes (see Question: What are investor compensation schemes?), in the event of a loss, customers may recover 90% of their "receivables arising from securities transactions", not to exceed €20,000. Compensation paid out to investors by the scheme is reduced by the amount that any third party pays to offset losses incurred. This is intended to ensure that investors do not receive compensation in excess of the loss incurred, for instance by successfully asserting claims for damages against brokers.

Banks and building and loan associations (Bausparkassen) are members of the Compensation Scheme of German Banks (Entschädigungseinrichtung deutscher Banken GmbH – EdB), a subsidiary of the Association of German Banks (Bundesverband deutscher Banken e.V. – BdB). The Compensatory Fund of Securities Trading Companies (Entschädigungseinrichtung der Wertpapierhandelsunternehmen – EdW) is responsible for covering securities trading firms (such as securities trading banks, financial services providers and asset management companies). These statutory compensation schemes are funded through annual contributions by their member institutions, which are determined in the respective regulations concerning contributions. If these funds are insufficient, the compensation schemes call on their member institutions to pay special contributions. In addition, they may borrow funds under certain conditions.

The public-sector savings banks (Sparkassen), state banks (Landesbanken) and state building and loan associations (Landesbausparkassen) as well as cooperative banks (Genossenschaftsbanken) are members of recognised institutional protection schemes offered by the German Savings Banks Association (Deutscher Sparkassen- und Giroverband – DSGV) and the National Association of German Cooperative Banks (Bundesverband Deutscher Volksbanken und Raiffeisenbanken – BVR) (see Question: What are institutional protection schemes?). The institutional protection schemes are funded through contributions which are set out in their respective articles of association. These articles of association also provide for the ability to demand special contributions from member institutions and the ability to borrow funds if need be.

In addition to the statutory deposit guarantee schemes and investor compensation schemes, many institutions (private banks and public-sector banks) have entered into voluntary arrangements for the protection of deposits and liabilities arising from securities transactions which seek to provide a level of protection for the money of their customers beyond the scope of the minimum statutory requirements. But in the case of voluntary schemes, customers are not legally entitled to compensation, and these voluntary schemes are not supervised by BaFin.

The following voluntary deposit guarantee schemes exist:

Private banks may offer additional protection for their customers’ money via the Deposit Protection Fund of the Association of German Banks (Bundesverband deutscher Banken e.V. – BdB). You can find out which banks are part of the Deposit Protection Fund of the BdB, as well as the exact level of protection, by directly contacting the Association of German Banks (address: Bundesverband deutscher Banken e.V., Burgstr. 28, 10178 Berlin, Germany) or by visiting the following website: www.bankenverband.de.

The institutions are assigned to a scheme based on the institutional group they belong to:

Banks and building and loan associations (Bausparkassen) are members of the Compensation Scheme of German Banks (Entschädigungseinrichtung deutscher Banken GmbH – EdB), a subsidiary of the Association of German Banks (Bundesverband deutscher Banken e.V. – BdB). Further information on the Compensation Scheme of German Banks is available on the BdB website (www.bankenverband.de).

Public-sector savings banks (Sparkassen), including state banks (Landesbanken), central savings banks (Girozentralen) and state building and loan associations (Landesbausparkassen) as well as cooperative banks (Genossenschaftsbanken), which include credit unions (Volksbanken) and agricultural credit cooperatives (Raiffeisenbanken), Bausparkasse Schwäbisch-Hall, PSD banks (PSD-Banken) and Sparda banks (Sparda-Banken) are not part of a statutory compensation scheme because they are members of institutional protection schemes that are recognised by BaFin (see Question: What are institutional protection schemes?). You can obtain further information on the Institutional Protection Scheme of the Savings Banks Finance Group (Sicherungssystem der Sparkassen-Finanzgruppe) from the German Savings Banks Association (Deutscher Sparkassen- und Giroverband) or online at www.dsgv.de. The National Association of German Cooperative Banks (Bundesverband der Deutschen Volksbanken und Raiffeisenbanken e.V.) and the website www.bvr.de offer information on how the institutional protection schemes for German cooperative banks work.

The Compensatory Fund of Securities Trading Companies (Entschädigungseinrichtung der Wertpapierhandelsunternehmen – EdW) is the scheme for securities trading companies (e.g. securities trading banks, financial services providers and asset management companies (website: www.e-d-w.de).

All credit institutions and financial services institutions are legally required to tell their customers in the schedule of fees which deposit guarantee scheme they are a member of. Information about this is usually also provided in the institution's standard terms and conditions (T&Cs).

New customers must be informed of the applicable conditions of the guarantee and the amount guaranteed. An institution must notify its customers if it ceases to be a member of a deposit guarantee scheme.

In addition, all credit institutions are required to inform customers at least once a year of the applicable terms for the statutory deposit guarantee, including the amount guaranteed, using a standardised information sheet.

Deposits from retail customers, partnerships and corporations are covered under the Deposit Guarantee Act. The deposits of institutional customers, such as the deposits of credit institutions, financial services providers, insurance undertakings, asset management companies and public-sector entities are not covered. Section 6 of the Deposit Guarantee Act (EinSiG) contains a list of deposits not covered – these are principally deposits from institutional investors.

The Investor Compensation Act (Anlegerentschädigungsgesetz – AnlEntG) covers liabilities arising from securities transactions by private investors and small companies. In contrast to deposit protection, large companies (corporations required by the German Commercial Code (Handelsgesetzbuch – HGB) to prepare a management report) and institutional investors have no claim to compensation. Section 3 (2) of the Investor Compensation Act (AnlEntG) contains a list of investors not covered.

Yes, because each account holder in a joint account ("and/or accounts") has a separate claim to compensation. This means that the maximum amount subject to the statutory deposit guarantee is doubled. For instance, if there are two names on the account (e.g., a married couple), the maximum amount is €200,000 if the account holders do not have any other deposits with the same credit institution.

Investor compensation would be €40,000 maximum in such a case.

If BaFin deems that a compensation event has occurred in accordance with the Deposit Guarantee Act, the deposit guarantee scheme pays out compensation based on the information available to the bank about the depositor and their deposit. Customers thus generally do not have to make any claim for coverage of up to €100,000 or provide any separate proof. Where up to €500,000 is covered, special provisions apply (see Question: What is covered by the German Deposit Guarantee Act?). In these cases, the customer has to make a written claim for the amount covered, providing credible evidence of their claim. Deposits of up to €100,000 must be reimbursed by no later than seven business days.

If BaFin deems that a compensation event has occurred in accordance with the Investor Compensation Act, the responsible compensation scheme automatically notifies all affected customers of the institution. Customers can then register their claims with the relevant scheme for compensation for liabilities arising from securities transactions within one year.

The statutory compensation scheme or the institutional protection scheme, which is also responsible for paying out the funds, will determine whether and how much compensation is owed (contact details and addresses can be found under: Which statutory compensation scheme or institutional protection scheme is my bank/institution a member of?).

The voluntary deposit guarantee schemes have established their own procedures for deposit protection and investor compensation in the event a member institution becomes insolvent; these can be requested from the respective banking associations (the relevant addresses and websites can be found under: What is covered by voluntary deposit guarantee schemes and which institutions are members of these schemes?).

If the branch of a foreign credit institution with its registered office in the EEA (e.g., registered office of the credit institution in Austria) is located in Germany, the German deposit guarantee scheme will pay out the compensation. This is done in the name of the deposit guarantee scheme of the home country of the credit institution (thus in the example, the Austrian deposit guarantee scheme). The necessary funds must be made available by the Austrian deposit guarantee scheme to the German deposit guarantee scheme before it pays out the compensation, and the costs incurred must be reimbursed. Depositors in Germany need not contact the deposit guarantee scheme in Austria themselves, as they can initiate the compensation process in Germany.

If a foreign institution (EEA and other states) forms a subsidiary with its registered office in Germany, that subsidiary also becomes a member of a German statutory compensation scheme.