In this Banking Basics, we take a closer look at the rules and regulations that keep your money safe.
8 min read
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.
Bank accounts: the basic rules
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.
Can I have multiple bank accounts?
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.
Banking basics
Banking jargon can be confusing—but it doesn't have to be. Find simple explanations to popular banking terms.
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.
Do you have to pay tax on foreign bank accounts?
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.
How much money in the bank is protected?
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).