Many expats have deposited large sums of cash in the Turkish banking system to see them through their retirement. With the highest ‘real’ rate of return of any deposit interest rate anywhere in the world (over 8%), the lure of such a great return is difficult to resist. But now as the ‘Credit Crisis’ worsens in the US, UK and European economies just how safe is the money you have deposited in your Turkish bank accounts?

Does Turkey have a deposit protection scheme like the UK?

Yes it does. It’s called the Savings Deposit Insurance Fund of Turkey (SDIF) or in Turkish TASARRUF MEVDUATI SİGORTA FONU (TMSF).

The fund was first established back in the 1930’s but the legislation and funding of the scheme has been revised regularly since.

The scheme protects certain deposits and investments that are held in registered domestic banks in Turkey and are operated by private individuals. However, unlike the UK, the Turkish scheme is actually a fund and not just underwritten by the banks.

What funds are covered?

Deposits covered by the scheme include Turkish Lira, foreign exchange currency or accounts linked to precious metals such as gold and silver. The scheme also covers what are called ‘participation funds’ such as equity funds.

What funds aren't covered?

Business accounts and offshore accounts are not covered under this scheme.

What is the maximum payout under the scheme?

The maximum pay out from the scheme is 50,000 YTL per person per bank – around 20,000 GBP.

However, if the TMSF is called into administer a bank before it collapses then all deposits held by private individuals are covered and not just up to the 50,000 YTL limit.

Does banking with HSBC, ING or Fortis offer better protection?

A global name doesn’t offer additional protection. These are banks are classified and registered as foreign commercial banks established in Turkey. Although these are part of well known global brands they are stand alone banks in Turkey and you would have to claim from the SDIF. However, if the money is held offshore you’ll need to claim from the fund of where the money is held.

Does banking with one of the government controlled banks offer greater protection?

Many Turks, mindful of the 2001 banking crisis in Turkey, will advise you to bank with one of the nationalised banks such as Vakif, Ziraat Bank or Halk Bank. They believe you are offered greater protection because these banks are unlikely to collapse. Whilst this ‘may’ be the case you can achieve the same effect by spreading your money around different banks and managing risk and return. Don’t forget the scheme covers 50,000 YTL per person per bank.

Can the fund pay out if all the banks collapse?

Of course not and nor can the US, UK or European schemes. In the event of that scenario your only hope is to have as much gold as possible!

So what should I do now?

The secret of all investing can be summed up by the old adage ‘never have all your eggs in one basket’. This means, unless the Turkish Government changes the limits, to ensure that you don’t have any more than 50,000 YTL in any one bank per account holder.