[Toddsterpatriot]

as long as fees are reasonable and they can be accessed using a debit card, since such accounts would have zero risk related to bank insolvency, no matter the amount in the account.

After foreign depositors got screwed over by Iceland last time, they might be shy about depositing money there again. Especially money that earns no interest and is subject to fees.

[PieterCasparzen]

After foreign depositors got screwed over by Iceland last time, they might be shy about depositing money there again. Especially money that earns no interest and is subject to fees.

Demand deposit accounts, according to the proposal, will be transferred to transaction accounts held at the CBI.

The CBI website tells us the CBI is owned by the Icelandic state, it is not owned by banks or other shareholders.

Therefore there will be zero risk in transaction accounts. Banks will simply use their systems in place to administer the demand deposit accounts of their customers. The banks' liability for the accounts will thus be shifted to the CBI; the banks liability will be to the CBI for the total, which they will pay off over time.

Thus for demand deposits - there is zero risk. No interest is earned, but there's no risk. Transaction accounts are just that: cash to conduct transactions.

As you mention, bank customers will move excess cash they don't need into instruments that provide them a return, savings accounts, cd's, etc. - but for each one the customer is going to have a risk/return proposition: how sound is the bank, what's the interest I'm earning. The difference is they are under no illusion that there is any guarantee of their investment.

The proposal goes on to mention that for demand deposit (checking) accounts therefore there would be no need for any deposit insurance scheme. The demand deposit is not a liability of the administering bank - it's a liability for the CBI - which can print its own money.