What is the $250,000 government guarantee?

What is the $250,000 government guarantee? And should it impact your money choices?

Australians can rest easy knowing their savings have the backing of a government guarantee. But when your money is at stake it pays to know the finer details.

For many of us, having a pool of personal savings is very rewarding. It’s money that can be used to tick off your bucket list, generate extra income through interest earnings, or just provide rainy day cash for unexpected bills.

So it’s good to know that savings stored in bank accounts are a very safe investment.

That’s not just because Australian banks are well-managed. You also have the security of the Financial Claims Scheme (FCS).

What is the $250,000 government guarantee?

The FCS is an Australian Government scheme that provides protection to deposit holders who have their money with Aussie banks, building societies and credit unions.

All these ‘authorised deposit-taking institutions’ (ADIs) – and this includes Defence Bank, don’t just have to meet strict licensing conditions, they are also carefully monitored by the banking watchdog APRA.

The government guarantee means that in the unlikely event that an ADI fails, you have the reassurance of a safety net for deposits worth up to $250,000 per account holder per ADI.

What’s covered by the $250,000 government guarantee?

There’s a lot to love about the FCS as it guarantees deposits for a wide variety of accounts including:

• Everyday accounts.
• Transaction accounts.
• Savings accounts.
• Term deposits.
• Offset accounts.
• Retirement savings accounts.

What’s less well-known is that under the FCS you are also covered for home loan offset accounts.

Please note any offset balances would be included with any other deposit balances you have up to $250,000 per account holder per ADI.

What’s not covered by the $250,000 government guarantee?

The $250,000 government guarantee covers a generous level of savings, but there are a few basics to bear in mind.

Here are the key issues to be aware of that could shape your financial decisions:

The $250,000 limit applies per account holder, per bank.

If you have more than $250,000 deposited with the same bank, the excess amount over $250,000 isn’t protected under the FCS.

Joint accounts protect you for an equal share.

Under APRA rules, you’re covered for an equal share of any deposits held in a joint account with another person.

For example, if you and your spouse/partner have a joint savings account with a balance of $60,000, each of you is protected to the tune of $30,000 under the FCS.

Offset accounts are protected, redraw is not.

As we mentioned earlier, deposits held in an offset account linked to your home loan are protected by the $250,000 government guarantee. However, the same amount in a redraw is not protected because that money is held in a loan.

Some banks operate under the licence of bigger banks.

The FCS limit of $250,000 applies to deposits held under the one ADI banking licence. The catch here is that some banks market themselves under more than one brand.

For example, a number of the big banks own smaller banks. It can be easy for consumers to think they have accounts with two different banks, when the reality is that both accounts are with the same institution.

You can rest assured, Defence Bank is owned by its members, not by a big bank.

 

Australia has one of the most secure and stable financial systems in the world, and as APRA notes¹, financial failures in Australia are extremely rare. This makes it unlikely you will ever need to rely on the $250,000 government guarantee. But it’s always good to know your money is protected.

For some more frequently asked questions on the scheme visit https://www.apra.gov.au/frequently-asked-questions-about-banking-and-financial-claims-scheme.

¹ https://www.apra.gov.au/financial-claims-scheme-protecting-depositors-and-policyholders