Cash Is King?
Storing too much money under your pillow can cause neck pain in the long run – so where to put it? In most cases, the answer is: the bank. A certain liquidity is important, but unfortunately also increasingly expensive due to inflation and the loss of purchasing power. Investing in cash is becoming increasingly risky as even banks can go bankrupt. Many people believe that in case of bankruptcy their deposits as bank customers are protected under any circumstances, but this doesn’t always have to be the case.
Until the world financing crisis in 2008, Austria had a state deposit protection of up to €100,000 per person, per financial institution. After the crisis, the deposit protection limit was even raised from €100,000 to “unlimited” in order to restore people’s confidence in banks. The upper limit of €100,000 was reintroduced in 2010.
In 2015, the Austrian Act on the Recovery and Resolution of Banks (dt. Bundesgesetz über die Sanierung und Abwicklung von Banken, BaSAG) was introduced, replacing state liability with bank liability. The Act entails creditor participation, the so-called bail-in tool. This allows banks to turn debt, i.e. creditors’ capital, into equity, which serves to recapitalise and therefore stabilise them.
The bail-in tool differentiates between different creditor groups, which are defined in the “loss absorption cascade” or “liability cascade”. Some creditors are fully excluded from bail-in, for example bank customers, whose deposits are covered by the deposit guarantee scheme.
Single Resolution Fund Austria
Three deposit guarantee schemes currently coexist in Austria: Einlagensicherung AUSTRIA GesmbH, Österreichische Raiffeisen-Sicherungseinrichtung eGen (ÖRS) and Sparkassen-Haftungs GmbH. They work as follows: credit institutions in Austria must pay into a deposit insurance fund. In a payout event, the money in these insurance funds can be used to protect customers’ deposits.
An amount of €100,000 of savings per individual per financial institution is protected. If you have more than one account with the same financial institution, the maximum you would get is still €100,000. Example: You have €60,000 in your current account and €60,000 in your savings account, both with the same credit institution, the maximum amount protected by the deposit guarantee scheme is still only €100,000 and not €120,000. For deposits in a joint account, each account holder is protected up to the deposit protection limit, i.e., €100,000 each.
Exceptions from this are, for example, temporary high balances resulting from selling a house, for which a higher maximum amount is protected. You can find more information on this here (Chamber of Labour).
Laws stipulate that until 2024 at least 0.8% of the total sum of protected deposits must be covered by the money in the deposit insurance funds (as of 2022). As 0.8% does not sound like much, one can figure that this amount may be enough for the resolution of small banks like Commerzialbank Mattersburg in Burgenland, but it will probably not suffice for a larger credit institution. Also noteworthy: These deposit insurance funds aren’t funds in the true sense of the word, but limited liability companies.
If you have more than €100,000 to save, it would be sensible to split it up between more than one banking institution. You should also make sure that these have different deposit insurance funds.
If you have a large amount of cash as an entrepreneur, it makes sense, after consulting your tax advisor, to pay income tax and social security contributions for the current year in advance. This also makes it easier to calculate how much money is left for possible investments.
