Definition
In Korea, the depositor protection system is a social safety net in which the Korea Deposit Insurance Corporation, a government-affiliated agency, pays customers back when a financial company they use goes bankrupt or closes and cannot return their deposits. It was created to prevent turmoil in financial markets and to protect ordinary depositors.
If a Bank Fails, Where Does My Money Go?
Imagine you left an item at a storage facility, and even if they lose it, a guarantee company pays you back. A bank is also a business, so it can close because of reckless investments or loans it fails to collect. If you got nothing back when a bank failed, people would be too anxious to put their money in banks at all.
When that anxiety grows, people rush to the bank all at once and pull out all their money. This is called a bank run (a mass withdrawal of deposits). Even a healthy bank cannot hold up when money drains out all at once, and it collapses.
The agency the state set up to stop this chain of failures is the Korea Deposit Insurance Corporation. It collects insurance premiums from banks in normal times and builds up a fund. When a particular financial company fails, it acts as a life jacket that pays depositors in its place.
How the 100 Million Won Per Person Limit Works
Today Korea's protection limit is up to 100 million won per person at each financial company, counting principal and a set amount of interest together. The key point is that it is applied by adding up everything per financial company (legal entity), not per branch.
For example, say you put 70 million won each in Bank A's Gangnam branch and Bank A's Hongdae branch, 140 million won in all. Because both are the same Bank A, only 100 million won is protected, and the other 40 million won is at risk.
But if you split it, 100 million won in Bank A and 100 million won in Bank B, the full 200 million won is safely protected. That is why spreading your money across several financial companies works: each company gets its own separate limit of up to 100 million won.
A Bit More Precisely: Is Every Kind of Money Protected?
Signing up at a bank counter does not mean every financial product is protected. Principal-guaranteed products such as time deposits, installment savings, and free-withdrawal accounts are definitely covered. But stock funds, bonds, and the main contract of variable insurance are investments, so they are products where the investor bears the risk of losing principal, and they are not protected. Still, the part of variable insurance that guarantees a minimum, such as a minimum death benefit, is protected.
Who protects you also depends on the type of institution. Commercial banks, savings banks, and brokerage deposits are protected by the Korea Deposit Insurance Corporation. But Saemaeul Geumgo (Korea's community credit cooperatives), credit unions (Sinhyup), and local agricultural and livestock cooperatives are protected not by that agency but by the safety funds of their own central federations.
These mutual finance institutions also have rules under their own laws to protect up to 100 million won per person, so the practical safety net works in a similar way.
Common misconceptions
If you split 100 million won each across several branches of one bank, each branch protects 100 million won separately.
Even if the branches differ, if it is the same bank entity, the principal and interest of all your accounts are added together and only up to 100 million won is protected.
Any product you sign up for at a bank counter has its principal guaranteed, whatever the type.
Performance-based investment products such as funds, ELS, and bonds leave the responsibility for results with you, so they are excluded from depositor protection.
Where you meet it
If you have a 95 million won time deposit and 3 million won in interest at Bank A, you get the full 98 million won back even if the bank goes bankrupt.
You split a lump sum of 300 million won across 3 different banks, 100 million won each, so all of it is safely covered.
In one sentence
A safety device in which, even if a financial company closes, the Korea Deposit Insurance Corporation pays back up to 100 million won per person per financial company, principal and interest combined.