Understanding the Bank Guarantee
- May 3, 2023
- 2 min read
Due to the recent issues with some US and European banking facilities, many have been questioning the security of their savings in Australian Banks. We thought it might be timely to remind you how the Bank Guarantee works here at home.
The Australian Government introduced a guarantee of all deposits held with Approved Deposit-Taking Institutions (ADIs) in response to the GFC in 2008. The guarantee, known as the Financial Claims Scheme (FCS), has been modified over the ensuing years, and, from 1 February 2012, the guarantee was reduced to a maximum of $250,000 per account holder, per ADI.
What is an ADI I hear you ask? An ADI includes Australian banks, foreign subsidiary banks, building societies, and credit unions. It’s important to understand that some banks may operate under different trading names and the Bank Guarantee applies to each banking license so you need to be mindful of this.
Where a depositor has multiple accounts with the same bank, the combined value of those accounts is covered by the guarantee, up to a total of $250,000.
However, if you hold accounts with different unrelated banks (i.e. separate ADIs) the guarantee applies to each ADI.
The guarantee covers each 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.
Therefore, a person who holds an account in their individual name and another account in their name as trustee of a self-managed superannuation fund is covered for up to $250,000 of deposits held by each account holder.
It should be noted that no investment (and depositing your money in the bank is considered an investment) is without risk. Australian Banks are heavily reliant on the property market, however most home owners have a reasonable equity buffer, which means if the borrower defaults, the bank can recover its loan from selling the house.
The Australian banking system is robust, thanks to APRA which forces ADI’s to constantly report their levels of capital (cash reserves) and debt. The monitoring of these levels together with the bank guarantee, should assist account holders to have confidence in the Australian Banking System.
A list of ADIs covered by the FCS can be found here: List of authorised deposit-taking institutions covered under the Financial Claims Scheme | APRA
