The EU’s Deposit Guarantee scheme is often considered as a key element of stability in the EU’s banking sector, introduced following the financial crisis of the mid-2010s. However, this sounds like a complicated financial term and can cause confusion.

Firstly, what is a Deposit? And What is a Deposit Guarantee Scheme?  

Money kept at a bank, such as in a savings account is called a deposit. The business model of most banks is to receive deposits and use part of those funds to provide loans and credit facilities to other customers.

Deposit guarantee schemes are often thought to motivate individuals and businesses to trust the banking system and keep holding their savings in Bank accounts and in the banking system thus reducing the risk of bank runs and bank failures.

What is the EU’s Deposit Guarantee Scheme—and Does It Protect Your Business Funds?

If you’re running a business in Cyprus or using a Cyprus company, you may have used both traditional banks and modern fintech platforms such as Revolut or Wise.

The Deposit Guarantee Scheme is an EU-wide protection mechanism that ensures bank depositors are reimbursed up to €100,000 per person, per bank, if their bank fails or becomes insolvent.

Each EU member state, including Cyprus, is required to maintain its own national scheme.

In Cyprus, the DGS is administered by the Central Bank of Cyprus, and applies to deposits held with authorised credit institutions (i.e., traditional banks).

Many experienced business owners are surprised to learn that the EU’s Deposit Guarantee Scheme (DGS) applies only to licensed banks—not to Electronic Money Institutions (EMIs) or Payment Institutions (PIs).

If your business keeps funds in a licensed Cyprus or EU-based bank, and that bank fails, the DGS will cover up to €100,000 of your deposits—per legal entity, per bank. Coverage applies per legal entity—not per account—so if your business holds multiple accounts with the same bank, the combined total is protected up to €100,000. If you hold accounts with multiple banks, each bank is covered separately under the scheme.

What Is Not Covered?

The DGS does not cover funds held with:

• Electronic Money Institutions (EMIs) – e.g. Wise
• Payment Institutions (PIs) – e.g. Payoneer
• Crypto platforms or non-EU regulated financial entities

These institutions are not included, even though they often provide IBANs, debit cards, and payment services that resemble traditional banking services. This is because they are not considered to accept deposits but to hold prepaid funds or facilitate payments.

It is important to note however that these institutions are required to safeguard client funds (typically by ringfencing or holding it with a third-party, fully licensed bank).

Why It Matters for Business Owners?

Many business owners have diversified their financial operations, using both traditional banks and modern fintech solutions. While this approach offers flexibility and efficiency, it is vital to clearly distinguish between regulated deposit-taking institutions and other types of financial service providers. When dealing with a financial institution, it is important to consider:  

• Is this a licensed bank in the EU or Cyprus?
• Is my deposit covered by the EU DGS?
• If not, how are funds safeguarded, and what is the risk in case of insolvency?

How We Can Help

We regularly advise business owners across Cyprus and the EU on structuring their financial arrangements securely and identify the right payment or banking partner for your business. If you’d like to find out more about our banking services, contact our team at info@paraschou.com.cy.

(EDIS) European Deposit Insurance Scheme and the three pillars of the Banking Union

   The year of 2014 can be associated with the creation of banking union, as a first to towards the united European banking system. In November 2015 the Commission proposed to set up a European Deposit Insurance Scheme for Bank deposits in the euro area. The EDIS proposal builds on the system of national deposit guarantee schemes (DGS) regulated by Directive 2014/49/EU[1]. This system already ensures that all deposits up to €100 000 are protected through national DGS all over the EU.

In 18/04/2024 and after 10 years since the initial idea of creating a third pillar in the European banking system and getting it adopted by all the member states, the European Parliament committee on economic affairs, has finally adopted a report on the European Deposit Insurance Scheme, designed to protect all deposits below €100,000 per person per credit institution, across the euro zone.

   The Banking Union is considered to be one of the biggest milestones in the integration of EU economies and institutions since the Economic and Monetary Union and is based on three pillars:

– The Single Supervisory Mechanism

–  The Single Resolution Mechanism

–  The European Deposit Insurance Scheme

The first pillar of the banking union, the SSM, increases the effectiveness of supervision and enhances cross-border cooperation and coordination. Under the SSM, the European Central Bank (ECB) is responsible for the supervision of significant banks, i.e. of those banks on which the euro area’s financial stability hinges in the first place.

Τhe second pillar, the SRM, ensures an orderly resolution of failing banks.
The proposal for the third pillar, EDIS, builds on the current system of national deposit guarantee schemes, which have been harmonized to ensure that all deposits are protected across the EU up to EUR 100,000 per person and bank. Ultimately, these bank deposit guarantees are to be fully financed by EDIS.

The idea behind it and how it all began…

   The main idea of the creation of an additional tool to protect the consumers from potential loss of all the funds in case any unexpected inconvenience takes place. It is considered of a significant importance to continue building trust and faith of depositors into banking system.

 Deposit Guarantee Scheme was first established in 2000 and operates as a separate legal entity since then. The Scheme consists of three funds, the Deposit Guarantee Fund for Banks, the Deposit Guarantee Fund for Cooperative Credit Institutions and the Resolution Fund of Credit and Other Institutions. In order to manage these funds, the Committee was established, consisting of representatives from the Ministry of Finance and the Central Bank of Cyprus.