What does deposit insurance mean?
In a market economy, banks may become bankrupt. A bank becomes bankrupt when the bank does not have enough money to pay its depositors. Therefore, bankruptcy is associated with the loss of savings by citizens.
Deposit insurance systems are established in order to prevent certain financial consequences of bankruptcy of a bank, and increase the security of citizens in their relationship with banks. Such systems, in case of a bankruptcy, make possible payment on insured deposits up to a certain limit. As a result, depositors will feel more secure and more protected when they use their bank because their money will be more protected in the bank than at home.
So, to insure deposits means that the savings of citizens shall be insured from the risk of bankruptcy of banks.