Banking Basics: EU banking rules and regulations

It won’t come as any surprise to you that the world of banking is a highly regulated industry. When it comes to handling money on behalf of millions of people, banks are (naturally) required by law to follow strict rules and guidelines in order to protect customers’ assets.

Of course, these laws differ from country to country. Countries like the UK, Germany, Italy, Spain and France all have fairly similar systems, but they’re not identical. In this article, we’re taking a closer look at some of the regulations that apply to the whole of the European Union as well as what this means to the everyday consumer... and how these regulations actually form the basis of their rights.

Generally, most of us are well-acquainted with the everyday aspects of banking. But the minute something new comes up – if you decide you want a second account, for example, or you need to file a tax return – you might not be so clear on what’s allowed. Here are a few of the most important things to know.

Needing two bank accounts is a fairly common situation. You might want a savings account, a joint account, an account for your work income, or something else alongside your everyday bank account. But is it legal to have more than one?

The answer is, yes. Not only this, but often it’s a good idea – for example, holding money a specialized savings account can earn you higher interest than you would on your regular bank account. It’s also completely legal to have accounts with different banks, if you want to.

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No. With a regular bank account (that’s just being used to hold your money), you won’t normally have to pay tax. However, interest earned on savings is generally taxed, but the percentage of tax is calculated depending on the value of the interest.

For example, rules in the UK at the moment states that it’s possible to earn up to £1,000 of interest on savings each year, without having to pay tax on this amount. The £1,000 figure goes down the more you earn, and there are additional allowances for low earners. There’s a similar rule for low-income earners in Germany: savings interest of more than €801 is taxable. The tax is called Abgeltungssteuer. You also have to pay tax on savings interest in Italy, France and Spain – three countries in which you should also watch out for a “wealth tax”, if you have really substantial savings. This taxes a percentage of your savings, rather than your salary income.

Tax is an area in which the laws differ from country to country. The laws can also change quite frequently, so watch out for developments in this area on your government’s official webpage for money and tax.

Things get more complex when more than one country is involved. As a general rule, you should pay taxes for the country you live in, but not elsewhere.

If you earn interest on savings held in a foreign country, you will generally be liable for tax on that income in the country where you live. For example, a French national living in Germany might earn €1,000 of interest on savings in a French bank account. That €1,000 should be taxed in Germany.

To avoid accidentally pay tax on the same income in two different countries, many countries have “tax treaties” (a.k.a. double taxation agreements) between their two nations, which are agreements to make sure this doesn’t happen.

Banks have a duty to keep your money safe. But if the unthinkable happens and your bank fails, there’s a backup, thanks to the European Union’s deposit guarantee schemes.

According to EU rules, bank customers’ deposits are guaranteed up to €100,000. That means that if your bank fails, you’re still guaranteed to get your money back, up to €100,000.

The equivalent figure in the UK, at the time of writing, is £85,000 under the Financial Savings Compensation Scheme (FSCS).

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There are various reasons why you might want to close a bank account. Perhaps you’ve found a better offer elsewhere, or maybe you no longer use a secondary account and want to simplify matters. Here’s what you need to know about the process...

While the exact method for closing an account varies depending on the bank, essentially, it should be simple: you just notify your bank (usually in writing) and move your money to whichever other bank you want it to go.

If you’re switching to an account with a different bank, your new bank can do the hard work for you. It should inform everyone who needs to know – your employer and so on – and switch over your direct debits and standing orders. Like the guarantee scheme we mentioned earlier, this is an EU-level rule.

This depends on the bank, so it’s a good idea to check what the account closure policy is when you sign up to open one. Some banks might require you to go in and sign some forms, but others will let you do the whole thing online.

It’s unusual but possible for banks to close an account without telling you in advance. In Germany, banks are permitted to do this if there’s a valid reason – for instance, if you’ve provided incorrect information to the bank about your money.

More commonly, banks will give you a notice period, probably of at least two weeks, if they intend to close your account. They do generally have the right to do so, just as you have the right to change banks. Rest assured, that this usually doesn’t happen often or without good reason.

Yes, in some cases it’s possible that a bank will notice a dormant account and take steps to close it. Banks tend to have their own rules and procedures for this, but in most circumstances you would be given enough notice to prevent the closure. To make sure this doesn’t happen to you, it makes good sense to use your account for a small transaction once in a while.

It used to be common to receive a paper letter statement from your bank in the mail every month. In the digital age, this has become less common. But physical bank statements can still be useful to have. If your bank doesn’t post these to you in the mail, you can usually request that they do (potentially with a small fee for the service) and you can also access your statements online or via your banking app.

A bank statement isn’t technically a legal document – in the way that a contract is, for example. But bank statements can certainly be used for official purposes – for example, as proof of identity or address, or to prove that you have money.

Depending on how much space you have at home, you might not need to keep every statement you’ve ever received. But it’s worth keeping a thorough record of your finances going back several years if you can –particularly if you’re self-employed– but if you can access your transaction history online, then it’s less vital to keep physical paper copies (or download PDFs) of your bank statements because you can always print these off when needed.

The rules for how long you should keep a full accounting record, including your tax return, vary by country. In the UK, for example, self-employed people are recommended to keep records for at least five years. It might be worth considering keeping bank statements for the same number of years, just in case these are ever needed to prove anything about your financial history.

Thanks to N26, your full transaction history is just a couple of taps away. Download your statements from the website, save and import as PDFs and print them whenever you need to.

That’s just one of the ways N26 is aiming to make banking simpler for everyone. It’s easy to set up an N26 account in many European countries, and control all your finances in an app.

As well as being 100% digital, we also hold a full EU banking license which makes us compliant with EU data privacy and security deposit schemes. Convenience meets peace of mind, so you can concentrate on what really matters: getting the most out of your money.

We want to simplify banking for everyone. We’ll be bringing you more articles to shine a light on the basics of money, finance and all things banking related – it’s often a lot simpler than you might think.