
This 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?