Deposit Protection for Neobanks in the EU: What You Need to Know
This guide explains EU deposit guarantee schemes and how they apply to neobanks. It covers licensing, pass-through insurance, and practical steps to verify your deposits are protected. Essential reading for anyone using or considering a neobank in Europe.
How EU Deposit Protection Works
Under the EU Deposit Guarantee Scheme Directive (DGSD), each depositor is protected up to €100,000 per bank in the event of failure. This coverage applies to all EU licensed banks, including neobanks that hold their own banking license. The scheme is funded by member banks and administered by national deposit guarantee schemes (DGS).
The Deposit Guarantee Scheme Directive
The DGSD ensures that if your bank goes bankrupt, you will be compensated within 7 working days. Coverage includes current accounts, savings accounts, and fixed-term deposits. Joint accounts are covered separately, with each named depositor entitled to the €100,000 limit.
How Neobanks Fit Into the Picture
Licensing is Key
Neobanks can either hold their own banking license or partner with a licensed bank. If a neobank has its own license (e.g., Revolut in Lithuania, N26 in Germany), your deposits are directly covered by that country's DGS. If it partners with another bank, your money is held at the partner bank and covered under that bank's scheme.
- Check the neobank's regulatory status on its website or the national regulator.
- Look for the deposit guarantee logo and its coverage details.
- Verify the partner bank is licensed in an EU or EEA country (coverage up to €100,000 applies across the EU).
Pass-Through Deposit Insurance
Many neobanks use a pass-through model: they place client funds in a pooled account at a partner bank, and each client is entitled to deposit insurance up to €100,000 on that partnership. However, you must ensure that the arrangement is structured correctly. Some neobanks may hold funds in a custodial account that qualifies for pass-through insurance, others may not.
Important Details to Verify
- Partner Bank License: Confirm the partner bank is within the EU/EEA and has a valid DGS membership.
- Coverage Limit: The €100,000 limit applies per depositor per bank, not per neobank. If you hold multiple accounts with the same partner bank through different neobanks, they may be aggregated.
- Custodial Arrangement: Ensure that your funds are held in a segregated account in your name, not commingled with the neobank's own funds.
What Happens If a Neobank Fails?
If the neobank holds its own license and fails, the DGS will pay out up to €100,000 per depositor. If the partner bank fails, your funds are covered under that bank's DGS, provided the pass-through mechanism is valid. If the neobank itself is not a bank (e.g., a fintech platform) and it fails without a banking license, your money remains safe at the partner bank, but you may need to claim directly from that bank or the DGS. Always read the terms and conditions to understand the specific protection structure.
Practical Steps for Users
- Identify whether your neobank has its own license or uses a partner bank. Check the 'Safety' or 'Regulation' page on the neobank's site.
- Look up the deposit guarantee scheme in the licensing country (e.g., the German DGS for N26, the Lithuanian DGS for Revolut).
- If your total deposits exceed €100,000, spread the excess across different banks (including different partner banks) to maintain full coverage.
- Keep records of your account statements and the DGS certificate for quick claims.
Deposit protection in the EU is robust, but you must do your due diligence. Understand the structure of your neobank, verify the licensing, and ensure your funds are within the coverage limit. By following these steps, you can enjoy the benefits of neobanking with peace of mind.