Is my money safe in a bank?

by Chris Lang on April 3, 2009

Money in a piggy bankThis is not a pure paranoia speaking – any recession is a weird time and strange things can happen. In the past 12 months we’ve seen defaults of a number of financial institutions overseas and by now understand that similar things can happen in Australia as well. I sure wouldn’t like to see my money go when a bank goes bankrupt.

Let me draw a picture of the worst case scenario I was thinking about: I am saving up for a deposit, finally the 20% are in the bank, waiting for me to find the right house and sign a contract, I am going to the bank to get bank cheque prepared and they are telling me “Unfortunately we are experiencing cash problems, can you wait a couple of months?”.

So far I’ve described the problem – now it’s time to discuss a solution. Getting the money out of the bank is certainly not the way to go. Although for some types of bank accounts my worst case scenario is possible, there are other accounts that you can keep your money in and still sleep well at night.

Here is the deal – having seen financial institutions fail (in USA in particular), Australian government decided to protect us and from 12 October 2008 announced it will guarantee deposits in Australian owned banks, locally incorporated subsidiaries of foreign banks, credit unions and building societies for a period of three years. Any deposit under a threshold of 1 Million AUD is guaranteed with no extra fees involved, and for anything above that amount there is a fee.

The guarantee doesn’t cover all the accounts, so read carefully which ones are covered:

  • Separate mortgage offset accounts (with either 100% or partial offset) are covered.
  • However, home loan accounts with a redraw facility are not included

    Included are all standard deposit accounts, such as:

  • Transaction accounts
  • Online accounts
  • DIY deposit accounts
  • Term Deposits

However, Market linked investments such as Shares and Managed funds and life insurance are not included under the Government’s program because they are not considered by the Government to be eligible accounts.

And, of course, if you have any specific questions, it’s best to ask at your bank.

I’d like to ask you – did you think about this problem before? How safe do you think your money is in your bank? Have you ever considered your bank’s credit rating? Do you know what “credit rating” means?

{ 2 comments… read them below or add one }

Andrew Murphy August 17, 2009 at 10:35 pm

The banking deposit guarantee scheme UK seems to have the same flaws as the Australian version. This is particularly acute problem for small businesses who may have exposure to risk in foreign banks or high turnover cash orientated businesses and need have surplus cash tied up for large purchases in future.Business banking for small firms is largely a monopolistic market place here in the UK with little choice and diversity in the product range of services small to medium-sized operations. The big worry seems to be where money is tied up in smaller banks who have exposed themselves to bad debts in the form of risky mortgages and loans. If one of these banks were to fail that is seem to be any priority small businesses to be repaid first in order to ensure employees wages are met and invoices settled.

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Louis January 12, 2011 at 1:29 am

Money in bank, at the time of financial crisis is not save, otherwise in my opinion it is save.

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