Keeping your nest egg safe: is it time to increase the level of protection?

Irish Times

13-05-2025

Savers in Northern Ireland could soon find themselves not just earning a better rate of return on their savings but also receiving a higher level of protection than their peers across the Border if changes afoot in the UK come to pass.
At the moment, savers with
AIB
NI can avail of rates of as much as 4 per cent AER on savings that are protected through the UK's Financial Services Compensation Scheme up to £85,000 – pretty much on a par with the level of €100,000 offered in the Republic as part of the EU scheme.
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But the UK is considering strengthening that protection. Under proposals put forward by the
Bank of England
, savers could have deposits of as much as £110,000 (€128,000) protected. This represents an increase of some 30 per cent on the current level of £85,000, and would mark the first time the level has changed since 2017 when the UK was part of the EU scheme.
The Bank of England has suggested the change is needed to keep protection in line with inflation to 'give consumers confidence that their money is safe if their UK-authorised bank, building society or credit union fails'.
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Sam Woods, deputy governor for prudential regulation at the UK central bank, said: 'Confidence in our financial system is an essential foundation for economic growth. We want to support confidence in our banks, building societies and credit unions by raising the amount that people can keep in their account which is covered by the deposit guarantee scheme to £110,000 per person, so all that money is safe even if the firm fails.'
A consultation is set to follow and, if adopted, the new rules will come into force on December 1st, covering both retail and SME customers.
But should Irish savers be looking for a similar increase?
Irish case
In Ireland, savers are protected through the Deposit Guarantee Scheme up to €100,000 per person, per bank or financial provider, if those institutions are unable to repay your deposit. If a similar rate of increase to the UK was adopted, this would jump to €130,000.
Of course, it's not as straightforward in Ireland.
Post-Brexit, the UK is free to set its own agenda: as part of the European Union, Ireland must follow the EU's guidance on this. And, under the EU Deposit Guarantee Scheme Directive, protection schemes have been harmonised across the bloc at the level of €100,000.
The scheme has been effective. Since its introduction back in 1994, depositors have not suffered any losses on holdings of less than €100,000. The scheme is obliged to pay out within seven days of an institution failing.
In Ireland, depositors have claimed through the scheme in relation to liquidations at IBRC; Berehaven Credit Union; Rush Credit Union; Charleville Credit Union and Drumcondra and District Credit Union.
And it continues to offer protection for most savers – according to the European Banking Authority (EBA), the current level of €100,000 fully covers the majority of European savers. Figures from end-2023, for example, show that 96 per cent of eligible depositors in the European Economic Area would be paid back the full amount of their deposits at any failed bank.
'Only a relatively small share of consumers hold deposits above this level, meaning few savers would see direct benefits from a higher limit,' Eoghan O'Hara, the country head of
Raisin
Ireland notes.
The EBA simulated the impact of increasing the level of protection to €150,000, but found that it would have a 'very limited impact on the proportion of fully covered depositors since the level of full coverage is already very high'.
As such, the EBA suggested that a potential increase in the €100,000 limit would have a 'positive' but 'limited' impact on financial stability and consumer protection.
It would also be costly as more protection means more funding. While Ireland's deposit protection scheme is administered by the Central Bank, it is credit institutions covered by the scheme that actually fund it.
It remains under review, however.
The issue for savers is that, at a time of continued inflation, €100,000 is not worth what it used to be. According to the CSO's inflation calculator, €100,000 in March 2015 now has an equivalent of about €123,500.
Irish savers may also have a lower choice of savings options, given the lack of competition in this space and the departure of so many providers in recent years – although they are covered for savings in other EU banks.
The level of protection may be more relevant to Irish savers, given how much of our wealth is tied up in deposits. Latest figures from the Central Bank show that household deposits stand at about €143 billion.
Irish households also have a strong savings rate. In the last three months of 2024 for example, Irish households saved almost 14 per cent of their disposable income – slightly below the euro zone average, and Germany, which has a savings rate of almost 20 per cent – but ahead of countries such as Denmark, Italy and Spain.
Raisin Ireland is a pan-European savings platform that offers Irish savers the chance to put their deposits with a host of European banks, including Germany's Aareal Bank and Sweden's Klarna, that they might otherwise not have access to.
O'Hara says the issue of protection for savers is a 'central topic' for the platform, and that 'any steps that give consumers more protection and strengthen financial security across Europe' should be encouraged.
'It's important to continually assess the protection level in line with savings behaviour, inflation and broader financial trends. We would also support any changes that help to promote a fair and fully competitive rate environment for savers right across Europe,' he says.
Global comparison
But what kind of protection do savers outside of the EU benefit from? While those in the UK may enjoy a greater level of savings protection if those current proposals do come into force, those in the so-called crown dependencies (Isle of Man, Jersey and Guernsey) benefit from a lower level of just £50,000.
Farther afield, the amounts can be higher. Australians have protection of about €140,000; the Swiss about €107,000 and, in the US, deposit protection is as high as about €217,000.
But not everywhere has one – in New Zealand, for example, a new scheme is set to be introduced only in July of this year, following a recommendation from the International Monetary Fund. It will protect savings of up to NZ$100,000 (€52,800)