How Neobanks in Europe Are Covered by Deposit Guarantee Schemes
European neobanks typically hold a banking license, making customer deposits eligible for national deposit guarantee schemes up to €100,000. However, some operate as e-money institutions with different pass-through protection. This article explains the mechanisms, key differences, and steps to check your coverage.
Understanding Deposit Guarantee Schemes in Europe
Deposit guarantee schemes (DGS) are a cornerstone of European banking safety nets. They protect depositors up to €100,000 per person per institution if a bank fails. This protection applies to all EU-licensed banks, including neobanks that hold a full banking license. However, not all neobanks are equal; some operate as e-money institutions (EMIs) with a different protection model.
How Neobanks Fit Into National DGS
Neobanks such as N26, Revolut, and bunq are fully licensed banks in their home countries. For example, N26 is a German bank, so its deposits are covered by the German Deposit Protection Scheme (Entschädigungseinrichtung deutscher Banken). Similarly, Revolut’s European banking license is in Lithuania, with coverage up to €100,000 from the Lithuanian DGS. Always check the specific license of your neobank, it determines which country’s scheme applies.
Key Differences for E-Money Institutions vs Credit Institutions
Some neobanks, especially smaller ones or those in early stages, may hold an e-money license rather than a full banking license. EMIs are regulated under the Electronic Money Directive, not the Capital Requirements Directive. They are not direct members of DGS. Instead, they must safeguard client funds in a separate account with a real bank. In case of EMI failure, your claim is against that safeguarding account, not a DGS payout. Always confirm whether your neobank is a credit institution (bank) or an EMI to understand your protection.
What the €100,000 Coverage Really Means
The €100,000 limit applies per depositor per licensed institution. If you have multiple accounts with the same neobank (e.g., current, savings), they are aggregated. But accounts with different banks (even if part of the same group) are separately protected. This limit covers all currencies held in the account, but in practice, DGS pay out in euros based on exchange rates at the time of failure. For joint accounts, each owner is covered up to €100,000. Temporary high balances from events like property sales may qualify for additional protection, but this requires notification.
How to Verify Your Neobank’s Protection
- Check the neobank’s website for its license and DGS membership. Look for explicit statements like “member of the [country] deposit guarantee scheme.”
- Confirm the license number and country from the relevant financial regulator (e.g., BaFin for Germany, Bank of Lithuania for Revolut).
- For EMIs, ensure client funds are safeguarded with a bank that is DGS-covered. The EMI should provide details of the safeguarding arrangement.
- Use the European Banking Authority’s list or national DGS directories to cross-check.
What Happens If a Neobank Fails?
Claims Process for Licensed Banks
If a neobank licensed as a credit institution fails, the national DGS will pay out eligible deposits within 7 to 20 working days, though EU targets are 7 days by 2024. You must submit a claim, typically through the scheme’s online portal. Keep records of account statements. The payout covers up to €100,000, including principal and accrued interest.
Claims Process for E-Money Institutions
If an EMI fails, the safeguarded funds held in a separate account at a bank are returned to customers, but this is not a DGS payout. The bank holding the safeguarded account is responsible for releasing funds. If that bank also fails, you may have a DGS claim against the bank, but not the EMI. This layered risk makes choosing a bank-licensed neobank simpler for most depositors.
Cross-Border Considerations
Neobanks often serve customers across Europe under passporting rules. Your deposits are covered by the DGS of the neobank’s home country, not your country of residence. For example, a French customer of Revolut is covered by the Lithuanian DGS, not the French one. The €100,000 limit is an EU-wide harmonised maximum, but the actual scheme rules (payout time, currency conversion) follow home country rules. If you have multiple accounts across different EU neobanks, each is separately protected up to €100,000.
Staying Informed
Regularly review your neobank’s regulatory status. Some neobanks change license types. Also, note that deposit protection does not cover investment products (stocks, crypto) offered by neobanks. Only cash deposits in current or savings accounts with pass-through protection are included. Always read the terms and conditions regarding protection, they should clearly state which scheme applies and the coverage limit.