Deposit insurance is a type of insurance that protects depositors of banks and other financial institutions in the event of the institution’s failure. It guarantees the repayment of deposits up to a certain amount, usually in the range of $100,000 to $250,000, depending on the jurisdiction. This insurance is typically provided by a government agency, such as the Federal Deposit Insurance Corporation (FDIC) in the United States.
Deposit insurance schemes around the world vary greatly in terms of coverage and eligibility requirements.
Below is a comparison of some of the more prominent deposit insurance schemes:
United States: The Federal Deposit Insurance Corporation (FDIC) provides deposit insurance for up to $250,000 per depositor, per insured bank. The FDIC is funded by premiums paid by banks and thrifts, and is the world’s oldest and largest deposit insurance scheme.
European Union: The European Deposit Insurance Scheme (EDIS) is a deposit insurance scheme that covers deposits up to €100,000 per depositor, per bank. Unlike the FDIC, EDIS is funded by contributions from participating banks and is managed by the European Central Bank.
Canada: The Canada Deposit Insurance Corporation (CDIC) provides deposit insurance for up to $100,000 per depositor, per insured bank. The CDIC is funded by premiums paid by banks and is the only deposit insurance scheme in Canada.
United Kingdom: The Financial Services Compensation Scheme (FSCS) provides deposit insurance for up to £85,000 per depositor, per bank. The FSCS is funded by levies on financial services firms and is the largest deposit insurance scheme in the UK.
Australia: The Australian Prudential Regulation Authority (APRA) provides deposit insurance for up to $250,000 per depositor, per approved deposit institution. The APRA is funded by fees and levies on deposit institutions and is the only deposit insurance scheme in Australia.
Japan: The Japan Deposit Insurance Corporation (JDIC) provides deposit insurance for up to ¥10 million per depositor, per bank. The JDIC is funded by premiums paid by banks and is the only deposit insurance Deposit scheme in Japan.
Deposit insurance is crucial in offering protection to consumers against the loss of deposits in the event of a bank failure. Deposit insurance helps maintain public confidence in the banking system by guaranteeing that even if a bank fails, depositors will not lose their money. By providing this assurance, deposit insurance encourages people to save money, which helps banks make more loans to businesses and individuals, and contributes to economic growth.