- If you have money deposited with a bank that goes bust, you're covered by the Government up to $250,000.
- Even beyond this amount, depositors are prioritised above other creditors when the bank is under administration.
- If your lender goes bust, your loan will likely just be sold to another lender.
It's highly unlikely that your bank or lender will go under. Apart from neobanks Xinja and Volt Bank handing back their licenses in the early 2020s, no Australian bank has collapsed since State Bank of South Australia in 1991.
However, there are plenty of cautionary examples from around the world that demonstrate that it still isn't impossible. Here's what to know if you're worried about what happens to your savings account or home loan if your bank or lender collapses.
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How can a bank collapse?
The most common way for a bank to fail is when its assets are worth less than its liabilities, leaving it unable to pay depositors and creditors.
How do banks make money?
To understand how this works in practice you need to appreciate how retail banking works. Customers deposit money with the bank in exchange for interest, recorded as a liability. The bank then loans this money out to other customers - an asset on its balance sheet - and profits from charging a higher rate on its loans than it pays on its deposits. That means that at any one time a bank will only have a small fraction of the amount deposited with it on hand.
There are two main ways a bank starts to struggle with its liabilities:
- Too many loans are written off: If a huge proportion of a banks loan customers became unable to pay the loan back, the bank might not be able to generate enough revenue to meet its liabilities. This was a possibility during the Global Financial Crisis, after which responsible lending standards were increased across the world to mitigate this risk.
- A bank run: This is probably the scenario your adolescent brain lept to when you found out banks don't have everyone's money on hand: What happens if everyone withdraws their money at once? Banks, and by extension the entire financial system, rely on this not happening. While they are rare (the last in Australia was Queensland Permanent Building Society which suffered a bank run and closed its doors in 1977), it can occur when people are scared that the bank is about to collapse and rush to get their money out before it does, ironically making said demise more likely.
What happens to your savings if your bank collapses?
If you have money deposited with an Authorised Deposit-Taking Institution (ADI) that goes under, your savings are protected by the Australian Government up to $250,000 under the Financial Claims Scheme (FCS).
APRA Financial Claims Scheme Explained
The FCS was introduced in the aftermath of the global financial crisis to boost confidence in the Australian banking system.
Under the FCS, if you have up to $250,000 in your savings account, you will receive all of that money back in the event that the bank collapses (provided that your bank is on this list of ADIs). However, if you have more than $250,000 in deposits with the one bank you won't be guaranteed to get it all back.
For example, if you have $460,000 in a savings account, you are guaranteed to get $250,000 back but risk losing the remaining $210,000. However if you had $250,000 with one bank and $210,000 at the other, you'd be 100% guaranteed even if both banks went under, unless both were under the same ADI licence.
The $250,000 guarantee also applies to each holder if the account is jointly owned. If you and your partner share a joint account with $500,000 in it, both of you are individually guaranteed up to $250,000.
The government guarantee applies to all customer deposits with a licensed bank, so that includes funds in savings accounts, transaction accounts, term deposits and offset accounts.
The FCS also applies to credit unions and building societies.
If you're still unsure your money will be covered, the Australian Prudential Regulation Authority (APRA) has a handy deposit checker on its website.
Depositor preference
Beyond the FCS that protects amounts up to the $250,000 cap, there's another level of protection that covers all deposits (not just amounts under the $250k cap) called 'depositor preference'.
"Deposits above the cap [for FCS claims] in Australian ADIs also benefit from depositor preference. This means that Australian depositors have a priority claim on the assets of a failed ADI ahead of other unsecured creditors, after the Government has been reimbursed for any amounts paid under, and expenses incurred in relation to, the FCS"
- Reserve Bank of Australia
This means that if an Australian bank collapses:
- The Government gets first preference over the bank's assets to recover amounts paid out to depositors under the FCS (the $250,000 guarantee) and other expenses incurred in operating the FCS, then...
- The failed bank's remaining Australian assets must then be used to repay any deposits above the $250,000 cap before they can be used to repay other unsecured creditors.
What happens to your mortgage if your bank or lender goes bust?
If your lender went bust, the most likely outcome is that your mortgage would get sold to another lender. The terms of your mortgage contract are unlikely to change - your repayments will just now another financial institution.
Essentially, you keep calm and carry on making your mortgage repayments.
Once your mortgage has been sold to another lender, the interest rate could move up or down depending on how the new lender sets their rates.
If your lender were to go bankrupt, they can't 'call up' your mortgage - meaning they can't ask you to pay the remainder of your loan in full.
What happens to the money in your redraw?
The government guarantee does not cover redraw facilities - whether your lender is an ADI or not. So it doesn't really matter if you're with a big four bank or an online non-bank lender - the government guarantee does not apply to redraw facilities.
However, if your lender were to go bust, any extra mortgage repayments you have put into the redraw facility would be deducted from the amount you owe the lender. So, your outstanding loan balance would effectively be reduced and your net position would not be impacted.
On the other hand, mortgage offset accounts are covered under the $250,000 government guarantee.
Read more: What's the difference between a mortgage offset and a redraw facility?
Are non-bank lenders and neobanks safe?
Contrary to what some people may think, non-bank lenders and neobanks are generally just as safe as any of the major banks because all are bound by strict regulations.
Neobanks have to obtain a full ADI license from APRA before accepting money from customers. Stashing your money into a savings account offered by a neobank should be no riskier than depositing your money in a savings account with a major bank.
While non-bank lenders aren't ADIs, this doesn't mean these institutions aren't safe to borrow from. Non-bank lenders are still governed by the Australian Securities and Investments Commission (ASIC) and bound by the National Consumer Credit Protection Act (NCCP) and Australian consumer law.
Because they have lent you money, you have their money and assuming you have a standard mortgage, they cannot ask you to pay up the rest of your loan if they went bankrupt. Just like a bank, a non-bank lender can only ask you to continue making your normal mortgage repayments.
In Australia, all legitimate banks and lenders must hold an Australian Credit License (ACL) from ASIC or an Australian Financial Services License (AFSL). Banks and lenders (and finance websites like this one) must display the numbers of these ACL or AFSL licences (it's usually found at the very bottom of a website). If you scroll down to the bottom of this website, for example, you'll see Savings.com.au's AFSL and ACL number:
If you're unsure the company you're dealing with is legitimate or not, MoneySmart has a list of unlicensed companies that should be avoided.
Article first published March 2020 by Emma Duffy, last updated December 2025.