In a joint statement, Chancellor Angela Merkel and her Finance Minister Peer Steinbrueck said the government would guarantee private bank accounts, and some 568 billion euro (S$1.1 trillion) in personal savings and checking accounts as well as time deposits, or CDs.
The statement lacked concrete details. Dr Merkel's spokesman said it was aimed at quelling fears that individuals' savings could be wiped out.
'I think it was an important step at the right moment, to definitively assure people that their savings are secure and that no account holder here will lose their investment,' government spokesman Ulrich Wilhelm said at a regular government news conference on Monday.
Mr Steinbrueck said the plan was an important signal and meant to soothe financial markets, although stocks fell sharply once again on Monday.
Germany's benchmark blue-chip DAX 30 was down nearly 6 per cent.
Financial stocks fared worst, even as central banks around Europe continued to support the banking system's liquidity with billions of dollars in short-term loans.
Meanwhile, Berlin was quick to counter any parallels between its pledge on deposits and the action taken last week in Ireland to insure savings there. Irish President Mary McAleese signed into law a bank-guarantee bill, granting taxpayer protection to all deposits and debts of Irish-owned banks, worth some 440 billion euro.
'In Ireland, guarantees were given to banks themselves ... we are talking about covering private investors, savings,' Mr Wilhelm said.
'Over the past week a political consensus developed within the government that in the case of serious alarm, we should act politically to guarantee the savings of private account holders.'
The move came after Dr Merkel's government this weekend announced a new bailout package totaling 50 billion euro for Hypo Real Estate, Germany's second-biggest commercial property lender. -- AP