As a foreign account holder with a deposit in Portugal, you may have concerns about the security of your savings in the event of a bank failure. In this essay, we will explore the Deposit Guarantee Scheme (DGS) in Portugal, providing a comprehensive understanding of its purpose, features, and coverage. The aim is to ensure that you are well-informed about the principles of deposit insurance in Portugal and confident in the protection it offers for your deposits.

The Deposit Guarantee Scheme in Portugal is an essential component of the country’s financial system, designed to maintain depositor confidence and safeguard their deposits in case of a bank failure. The DGS is operated by the Portuguese Deposit Guarantee Fund (Fundo de Garantia de Depósitos, FGD), which was established in 1992. The FGD is a public legal entity, independent from the state, and supervised by the Bank of Portugal, the country’s central bank.

The primary purpose of the DGS is to protect depositors by guaranteeing the reimbursement of their deposits up to a certain limit. This protection serves to maintain public confidence in the financial system and prevent bank runs, where large numbers of depositors withdraw their funds simultaneously due to fears of bank insolvency. The DGS contributes to the overall stability of the financial system in Portugal.

The DGS covers deposits held by individuals, companies, and other legal entities, regardless of their nationality, domicile, or residence. The coverage extends to demand deposits, term deposits, and savings accounts held at banks, savings banks, and mutual agricultural credit banks operating in Portugal.

The maximum coverage limit is set at €100,000 per depositor, per credit institution. This means that if a bank fails, the FGD guarantees the reimbursement of each depositor’s aggregate deposits up to €100,000. It is important to note that the coverage limit applies to the total amount of deposits held by an individual in a single bank. If a depositor has multiple accounts within the same bank, the combined balance is covered up to €100,000. However, if a depositor has accounts in different banks, each account is protected up to the coverage limit.

There are certain types of deposits and financial instruments that are not covered by the DGS. These include: Deposits made by financial institutions or credit institutions on their own behalf; Deposits arising out of transactions in connection with money laundering or terrorist financing; Deposits made by public authorities, central banks, and international organizations; Deposits made by collective investment undertakings, pension funds, and insurance companies; Debt securities issued by credit institutions, such as bonds and promissory notes; and Deposits with a maturity exceeding two years.

The FGD is primarily funded through contributions from the participating credit institutions. These institutions are required to contribute to the fund based on their total deposit liabilities and risk profiles. Additional funding sources may include income from the investment of the FGD’s own resources, borrowing from credit institutions, and issuance of debt securities.

In the event of a bank failure, the Bank of Portugal declares the unavailability of deposits and triggers the reimbursement process. The FGD is required to reimburse the depositors within seven working days from the date of declaration. In exceptional circumstances, this period can be extended by the Bank of Portugal, but the total duration should not exceed 20 working days.

Depositors are not required to submit any claims or applications to receive the reimbursement. The FGD collaborates with the failed bank to obtain the necessary information about the depositors and their deposit amounts. In most cases, depositors will receive the reimbursement directly to an account in another bank or through a check issued by the FGD. The FGD will inform the depositors about the reimbursement process and provide instructions on how to access their funds.

The Deposit Guarantee Scheme in Portugal is part of a broader European framework, as established by the European Union (EU) Directive 2014/49/EU on Deposit Guarantee Schemes. This directive harmonizes the deposit guarantee schemes across EU member states, ensuring a minimum level of protection for all depositors within the European Economic Area (EEA).

If a depositor holds deposits in a branch of a foreign credit institution operating in Portugal, their deposits will be covered by the deposit guarantee scheme of the institution’s home country. Conversely, if a depositor holds deposits in a branch of a Portuguese credit institution operating in another EEA country, their deposits will be covered by the Portuguese DGS. In both cases, the coverage limit remains €100,000 per depositor, per credit institution.

Furthermore, the directive facilitates cooperation and coordination among deposit guarantee schemes within the EEA. This ensures that depositors receive timely and efficient reimbursements, even in cross-border scenarios.