Lesson 7.5 · 5 of 5 · Tax, pensions and protection where you live
Investor protection in the EU: what if your broker or bank goes bust?
If an EU bank fails, deposits are guaranteed up to €100,000 per person, per bank. If an investment firm fails, your shares are held apart from its own assets and should come back to you; if something is missing, a compensation scheme pays up to a limit of at least €20,000. No scheme covers falling prices.
Terms in this lesson
- Investor compensation scheme
- The protection that returns your cash and shares, up to a limit, if your broker goes bankrupt.
- Broker
- The firm through which you buy and sell stocks, ETFs and other investments.
- CFD
- A contract with your broker that pays or charges you the price move, without owning the asset.
- Crypto exchange
- The website or app where you buy and sell crypto with dollars, euros or other currencies.
Opening question
Your broker goes bust. Your shares were held in a client account, separate from the broker’s own assets. What normally happens?
Client assets are not the broker’s property, so its creditors cannot take them. They are returned to you or moved to another firm, although it can take time. Compensation matters only if something is missing.
It does not matter if you get it wrong: trying first helps you remember.
Investor compensation schemes in the EU: what they pay
Definition
What is an investor compensation scheme?
A fund that pays you if a failed investment firm cannot return your money or securities.
Under the EU investor compensation directive, every investment firm must belong to a scheme, which pays up to a limit of at least €20,000 per investor. It covers money or securities the firm cannot give back, for example after fraud or poor record-keeping. It does not cover losses from investments falling in value. Countries may pay more, and some pay only part of each claim.
| Example scheme | What it pays |
|---|---|
| Germany: EdW | 90% of the claim, up to €20,000 per investor |
| France: FGDR | securities up to €70,000 per client, per firm |
| Spain: FOGAIN | up to €100,000 per investor |
Examples only, checked on 29 October 2026 on each scheme’s website. A firm authorised in another EU country is normally covered by that country’s scheme, with its own limit.
Work it out
Germany’s EdW, as an example in 2026, pays 90% of a claim, up to €20,000 per investor. A failed firm cannot return €15,000 of your money. How much does the EdW pay, in euros?
A hint
Take 90% of the claim, then check it against the maximum.
How sure are you?
90% of €15,000 = €13,500, below the €20,000 maximum. Under the French or Spanish scheme the same claim would normally be paid in full, because they pay the whole claim up to a higher limit.
Deposit guarantee: how cash in an EU bank is protected
Cash your broker places with a bank on your behalf may be protected differently, so ask how and where client money is held. Every EU country must also protect certain temporary high balances, such as the proceeds of selling a home, above €100,000 for a limited time, but the amounts and periods differ by country. An EU reform, Directive (EU) 2026/804, sets a common minimum for this, which countries must write into law by 11 May 2028.
Check yourself
In 2026 you have €70,000 in a savings account and €60,000 in a current account, both at the same EU bank. The bank fails. How much is guaranteed?
The €100,000 limit applies per person, per bank, not per account. So €100,000 of your €130,000 is guaranteed and €30,000 is not, unless a temporary high balance rule applies.
Segregation: why client money and shares are kept separate
Definition
What does segregation mean?
Your assets are kept apart from the firm’s own.
Under MiFID II, the EU rules for investment firms, a firm must keep clients’ securities and money separate from its own, keep records of whose they are, and not use clients’ securities for itself without their express consent. If the firm fails, client assets are not used to pay its debts. That is why clients can usually get their shares back, even if it takes time.
Match the terms
Match each protection with what it covers.
This exercise is in the free account, where we also save your progress.
Create a free accountWhat is not protected: price falls, CFDs, crypto and unauthorised firms
- Price fallsNo scheme pays if your shares or funds lose value. That is investment risk, and it stays with you.
- CFD and leveraged trading lossesLosses from trading CFDs are your own trading losses, not a firm failure. Compensation covers only money a failed firm cannot return.
- CryptoCrypto on a crypto exchange is not covered by deposit guarantees or investor compensation. The EU’s crypto rules (MiCA) require providers to keep client crypto separate, but they set up no compensation fund.
- Unauthorised firmsA firm with no authorisation belongs to no scheme. Check your national regulator’s register before you send money.
Myth or fact?
“If my shares fall 40% and my broker later goes bust, the compensation scheme pays back the 40%.”
This exercise is in the free account, where we also save your progress.
Create a free accountCheck yourself
Which of these can an EU investor compensation scheme cover?
This exercise is in the free account, where we also save your progress.
Create a free account- Is the firm authorised, and where?Check your national regulator’s register. A firm authorised in another EU country uses that country’s scheme.
- Which scheme covers it, and up to how much?It is usually in the firm’s terms or on the scheme’s website.
- Where is my cash held?At a bank, under the deposit guarantee, or with the firm, under investor compensation?
- Do I have more than the limit in one place?Above €100,000 at one bank, the rest is not guaranteed.
- Is the product covered at all?Crypto and trading losses sit outside these schemes.
What would you do?
News reports say your broker is in financial trouble. Your account holds €15,000 of ETFs and €2,000 in cash. What do you do?
This exercise is in the free account, where we also save your progress.
Create a free accountWhat you learned
- Bank deposits are guaranteed up to €100,000 per person, per bank, across the EU.
- Client shares are kept apart from the broker’s own assets; if something is missing, investor compensation pays up to a limit of at least €20,000.
- No scheme covers falling prices, CFD trading losses, crypto or unauthorised firms.
One more time
The questions you got wrong, asked a different way.
Check yourself
You hold €80,000 at bank A and €80,000 at bank B, two separately licensed banks. Both fail. How much is guaranteed in total?
Each bank has its own €100,000 limit, so both balances are covered in full. Check that two brands are not the same bank under one licence.
You reached the end
Keep what you learned
With a free account we remember your lessons, bring back the questions you got wrong exactly when you need them and keep your streak.
Save your progress with a free accountLessons are educational. They are not a recommendation to buy or sell. Investing involves risk and you can lose money. Sources: European Commission (investor compensation schemes, Directive 97/9/EC; deposit guarantee schemes, Directive 2014/49/EU as amended by Directive (EU) 2026/804); EUR-Lex (Directive (EU) 2026/804 of 30 March 2026) and the European Parliament’s Legislative Observatory; MiFID II, Directive 2014/65/EU; EdW (Germany), FGDR (France) and FOGAIN (Spain) investor pages; all checked on 29 October 2026.