Is your Money Safe in the Bank? What is the Bank Guarantee?

Thursday, April 13, 2023

The 2023 events of a few overseas banks struggling to meet standards has raised questions about the security of our own Australian banks. Overall, the Australian banking system is strong, and we also have in place the added protection of the bank guarantee.

What is the Bank Guarantee?

As a result of the upheaval and uncertainty caused by the 2008 global financial crisis, the Australian government introduced a ‘bank guarantee’. This 'guarantee' applies to money held with Approved Deposit-Taking Institutions (ADIs). It is known as the Financial Claims Scheme (FCS) and currently covers a maximum of $250,000 per account holder, within each ADI.

What is an ADI?

An ADI includes Australian banks, foreign subsidiary banks, building societies, and credit unions. To check who is on the approved list you can read it here: FCS Institutions

It is important to understand that the guarantee is limited to $250,000 per institution. Therefore, if you have more than $250,000 in deposit with a particular institution, you would need to consider splitting the money into more than one ADI in order to be covered.

Another important thing to consider is that many Australian banks are merely brand names related to other Australian banks. For example, RAMS, St George Bank, Bank of Melbourne and BankSA are all owned by Westpac, so all of these brands are just one ADI – the Westpac Group.

Therefore, if you wish to be covered, you would need to determine any accounts you happen to hold within the one ADI when working out your $250,000 cap.

In the case that accounts are held with different unrelated banks (i.e. separate ADIs) the guarantee applies to each ADI.

Defining an Account Holder

An account holder may be an individual, a company, a partnership, trustees of a trust, or trustees of a superannuation fund (including a self-managed superannuation fund). An account holder also includes an unincorporated association or body of persons such as a club or association.

Each account holder is covered by the guarantee. Accounts held in joint individual names (e.g. a single account held jointly by spouses, or multiple trustees of a single trust) are treated as a single account holder.

For members of superannuation funds, other than self-managed superannuation funds, the guarantee is offered to the trustee of the fund, and not to each individual member of the fund. Therefore, members of large superannuation funds that have retirement savings invested in the cash account of their superannuation fund, will only share proportionately in the guarantee, in the event of the guarantee being invoked under the FCS.

Contact Maher Digby Financial Planners for Investment Strategy Advice

If you have any concerns or questions about the security of your investment strategy it is best to discuss this with your Financial Adviser. Maher Digby specialise in retirement planning that incorporates sound and secure retirement investment strategies which provide easy access to cash while maximising your capital holdings.

For more Information contact Mark Digby at Maher Digby Securities Pty  Ltd - Financial Advisers – AFSL No. 230559. This document was prepared without taking into account any person’s particular objectives, financial situation or needs. It is not guaranteed as accurate or complete and should not be relied upon as such. Maher Digby Securities does not accept any responsibility for the opinions, comments, forward looking statements, and analysis contained in this document, all of which are intended to be of a general nature. Investors should, before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or needs. We recommend consulting a financial adviser.