Instead of stuffing your hard-earned savings in your mattress or pillowcase like the olden days, your next best option is to secure your money safely with an authorised deposit-taking institution (ADI).
During the 2008 global financial crisis, the Australian Government introduced the Financial Claims Scheme (FCS) to provide financial protection to consumers in the unlikely event that their institution collapsed.
Without going into too much detail (as we’ll get into the juicy parts later), the FCS guarantees consumer deposits of $250,000 per account holder per ADI.
Essentially, it gives you peace of mind knowing that your money (or most if it) will be safe. It sounds a bit more reliable than your trusty mattress doesn’t it?
- How does the deposit guarantee scheme work?
- Types of banking institutions that are covered
- Types of accounts that are covered
- Is it possible my bank will go bankrupt?
- What if I have various accounts with different banks? Will I be covered?
- Are neobanks covered by the FCS?
How does the deposit guarantee scheme work?
In the unlikely event that a bank, building society, or credit union collapses, the financial claims scheme is a government guarantee that provides protection to people and other bank account holders with money on deposit in eligible accounts.
The scheme covers deposits (your savings) up to a limit of $250,000 for each account holder per institution. The financial institutions covered by the scheme are known as ‘authorised deposit-taking institutions’ (ADIs). Since the Banking Act of 1959, a bank or financial institution is only permitted to accept deposits from the public or open savings accounts on behalf of the public if they are authorised ADIs.
Let’s explain this with an example.
If Gary Antee has $500,000 in a term deposit with one ADI, he would only receive half ($250,000) of that money back through the FSC if his ADI fails.
The Australian Government have control over activating the FCS when an ADI fails. Once activated, the Australian Prudential Regulation Authority (APRA) will administer the FCS and return deposits to account holders within seven calendar days.
Types of banking institutions that are covered
The FCS covers the following banking institutions incorporated in Australia and authorised by APRA:
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Australian banks
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Foreign subsidiary banks
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Building societies
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Credit unions
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Certain other authorised deposit-taking institutions.
If you’re unsure whether your financial institution is an ADI, you can view the full list of banks, building societies and credit unions that are covered under the scheme on APRA’s website.
It is important to note that the FCS does not apply to branches of foreign banks in Australia, foreign branches of Australian banks that are located overseas, and of course, financial institutions that are not authorised by APRA.
Types of accounts that are covered
According to APRA, the types of accounts that are covered by the FCS include:
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Call accounts
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Current accounts
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Cheque accounts
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Debit card accounts
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Transaction accounts
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Personal basic accounts
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Cash management accounts
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Farm management deposit accounts
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Pensioner deeming accounts
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Mortgage offset accounts (must be separate deposit accounts)
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Trustee accounts
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Retirement savings accounts
Under the FCS, an account holder can be an Australian resident/citizen or non-resident/non-citizen.
A group of individual trustees of a trust, approved deposit fund, or superannuation fund are recognised as a single account holder.
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What if I have various accounts with different banks? Will I be covered?
The financial claims scheme is capped at one person per ADI.
For instance, if you have two accounts both with different ADI’s, both would be covered in the scheme.
Let’s use another example with Gary Antee.
If Gary Antee has $250,000 with NAB and $250,000 with CommBank, each account would be safe under the guarantee. However, if Gary had two separate accounts with NAB which totalled $500,000, he would only be covered for one account worth up to $250,000.
It is also worth noting that some ADIs have different brand names and sister companies which can affect how much you’re covered by in the scheme.
If Gary Antee has $250,000 in an account with UBank and also $250,000 in an account with NAB, he will only be guaranteed one of the $250,000 as UBank is owned by NAB and therefore operate under the same ADI.
So to answer your question, yes you will be covered by the financial claims scheme if you have various accounts with different ADI’s.
Is it possible that my bank will go bankrupt?
With all this talk about financial institutions failing, collapsing, or going bankrupt, there may be some uneasiness brewing whether this could happen in the near future.
Well, it’s time to ease your mind and point out the last official bank failure in Australia where any deposits were lost was over 90 years ago back in 1931. Two small banks, the Primary Producers Bank and the Federal Deposit Bank lost a small fraction of their customers deposits.
Although it’s very unlikely that your bank will go bankrupt, it’s nice to know that there’s someone out there looking out for you and (hopefully most of) your savings.
Doesn’t that sound like a relief…
Are neobanks covered by the FCS?
If you’re with a neobank like Judo Bank, you can rest assured that your hard-earned savings are in safe hands. Digital banking platforms go through the same regulatory approval process as your traditional banking institutions to be granted an ADI license by APRA.
If your neobank is licensed as an ADI then they are covered by the financial claims scheme by up to $250,000. Make sure to check the APRA website to see if your neobank is approved.
Savings.com.au’s two cents
No matter the circumstance, it’s always good to have a back up plan set in place in case something unexpected were to happen.
Confirming that your bank is an ADI, and is therefore covered by the financial claims scheme is a great first step in ensuring your money will be safe on the off-chance your financial institution collapses.
Image by sweetlouise via Pixabay
Harry O'Sullivan
Jacob Cocciolone
Brooke Cooper
