Is it still safe to keep my money in a bank?

Is it still safe to keep my money in a bank?

As Australia faces its first recession in decades, you may be curious as to whether your money is safer in a bank or hiding under your mattress.

While there are laws in place designed to protect deposit-holders, murky legislation passed in 2018 may mean that your deposits are vulnerable. Let’s explore how the money you deposit into a bank is kept safe, and whether it is at risk of being compromised.

Safety first

Firstly, your money is typically safer in a bank than in your own home. If your home were to be robbed, unless you had fantastic insurance, those funds are potentially lost forever. In the unlikely event your bank was robbed, there are insurances and protections in place to preserve your account balance.

Secondly, and most importantly, deposit taking institutions in Australia are covered by the Financial Claims Scheme (FCS). This is a government deposit guarantee, in which deposit-holders (those with savings accounts, term deposits etc.) with authorised deposit-taking institutions are protected in the event that institution were to go under. Deposits up to $250,000 are protected and will be paid per person or per institution.

However, there is a little-known scenario that may make this situation more precarious – the bank ‘bail-in’ – and this has amplified a lot of Australian’s fears around keeping money in banks. 

The "bail-in" explained

As opposed to a bail out, in which a government provides financial instructions with funds to ‘bail them out’ from going under, such as what happened during the Global Financial Crisis (GFC) in America, a bail-in protects financial institutions in a different way.

  • In a bail-in, a bank is able to essentially take money from your deposits to bolster its own finances in an emergency situation.

This action did occur in Cyprus during the 2012 – 2013 Cypriot financial crisis, through a one-time bank deposit levy to raise $7.5 billion in needed funds. Deposits with balances below €100,000 were to have 6.75 per cent withdrawn, and 9.9 per cent was to be withdrawn from uninsured amounts above €100,000. Depositors were to be compensated with the equivalent amount in shares with their banks.

But could this happen in Australia? A recent ABC article shows that there is legislation (passed in 2018) that allows Australian Prudential Regulation Authority (APRA) the power to “allow a bail-in financial instrument, known as ‘hybrid securities’”. This legislation is, understandably, causing some concern and being heavily scrutinised.

Two hundred submissions to remove any legislative “uncertainties” around whether APRA and banks can bail-in Aussie deposits have been submitted since 2018, and politicians are fighting to change this too. The main concern appears to be that the laws are vague in their description of what deposit-taking institutions may be able to do with deposit-holder funds.

However, the Treasury and the Australian Bankers Association have denied this argument, making reference to the FCS as part of the protections that are in place to prevent something like this from ever happening. 

Thankfully, Australia is in a completely different financial position than Cyprus. A bail-in is such a controversial move that it is unlikely the APRA would allow it to occur.

APRA Chair, Wayne Byres, spoke on this issue to the House of Representatives Standing Committee on Economics in March 2018.

“Another critical component of a resilient financial system is ensuring we have a strong regulatory framework, particularly in times of crisis. This framework has been strengthened with the recent passage of the Financial Sector Legislation Amendment (Crisis Resolution Powers and Other Measures) Bill 2017.

"The Bill provides a welcome and substantial improvement to APRA’s crisis management powers, better equipping us to deal with the actual or imminent failure of a financial institution. It is an underappreciated but essential piece of infrastructure that maximises the public sector’s ability to preserve an orderly financial system in times of stress," said Mr Byres.

Addressing fears around a 'bail-in' directly, Mr Byres said: "Concerns have been expressed in some quarters that the Bill might allow APRA to confiscate or otherwise use depositors’ money to save a failing bank.

"I would therefore like to use this opportunity to state clearly that that is most definitely not the case. There is no such power in the Bill. Indeed, APRA’s purpose under the Banking Act is to protect depositors, and the idea of ‘bailing in’ deposits would be anathema to that core purpose.

In fact, another safety net also exists to protect Australian deposits – the Reserve Bank of Australia’s (RBA) Committed Liquidity Facility (CLF). This helps to ensure banks are in a solid financial position and can manage any liquidity risk. It was introduced to protect Australians from economic situations like in America or Cyprus following the GFC.

At this point, it still appears that keeping your money in a financial institution is still the safest place for it.

Benefits of keeping money in a bank

While there are obvious benefits of keeping your funds in a bank, such as safety and accessibility, it’s also generally much easier to reach your savings goals with a bank.

Keeping your money in a high interest savings account, and ensuring you meet any conditions, or are aware of a high introductory rate period, will always help you to reach your savings goals faster. This is because of compound interest. 

Compound interest allows deposit-holders to earn interest on their interest. Meaning, if you deposit $1000 into a savings account and earn $15 in interest in one month, your balance will now be $1015. Next month you will earn interest on this full amount, not just your original deposit amount, so your savings will snowball over time.

Unless the RBA’s cash rate were to plummet below zero per cent, a savings account is crucial for helping millions of Aussies reach their savings goals.

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Learn more about bank accounts

Can you deposit money into somebody else's bank account?

One of the easiest banking tasks in the world is depositing money. You can even deposit money into someone else’s bank account if you wish.

The basic information you need to deposit money into a third-party bank account is:

  • Payee’s name
  • Bank, building society or credit union (though this isn’t necessary)
  • BSB (or bank code, which is the branch identifier)
  • Account number

Including the name of the financial institution isn’t necessary – particularly with online banking – because the BSB will identify this for you.

A handy tip is to record yourself (or add a personal message) in the transaction description or reference. This will show up on the recipients account, letting them know who’s paid them the money.

Can the government take your money from your bank account?

There are some instances when the government can take money from your bank account. This generally occurs in situations where you have an outstanding government debt.

Before it can take money from your bank account, the government authority owed money would first need to issue a garnishee notice. 

A garnishee notice is issued by the government agency (such as Centrelink or the ATO) to a third party that holds money for you or owes you money.

To take money from your bank account, your bank would be issued with the garnishee notice requiring it to pay ‘your money’ to the requesting agency to satisfy the debt.

How can I deposit cash into my bank account?

The traditional way to deposit cash into your bank account is to go to a branch and give it to a teller. These days, many banks will allow you to make deposits through an ATM as well.

How do you deposit change into your bank account?

One way to deposit change into your bank account is to visit a branch. Many lenders will also allow you to deposit your change through one of their ATMs.

How do you transfer money from PayPal to a bank account?

Transferring money from PayPal to an Australian bank account is simple. Just follow these three steps:

  • Go to your Wallet
  • Click ‘Transfer Money’
  • Follow the instructions

The money will take three to seven business days to reach your bank account.

Once you’ve made the transfer request, it can’t be withdrawn.

How can I wire money to a bank account?

You can wire money to an Australian bank account either through your own bank or by using a money transfer company such as Western Union or MoneyGram. Either way, you’ll need the other person’s name, BSB number and account number. If you use a money transfer company, you might also need to provide the recipient’s address for large payments.

How do you set up a bank account online?

Once you’ve compared bank accounts and found the right one, the process of opening a bank account online is quite simple and can be done in around 10 minutes.

To set up a bank account online, you’ll need to prove your identity and provide an approved form of ID as well as your tax file number (TFN).

If you’re a new customer of the bank, you’ll need to verify your identity and potentially upload documents before you can complete your online application.

Once your ID has been verified and you’ve set up your bank account online, you should receive your bank cards in the mail along with your PIN and any other account details.

Do I need to open a business bank account?

Just because you’re in business doesn’t necessarily mean you need a business bank account. You could be a sole trader not registered for GST, and use your personal bank account for business.

If you do want a business account, there are plenty of benefits attached to business transaction and savings accounts, as well as business term deposits.

There are business bank accounts designed for businesses with a high volume of transactions, and those for start-ups with a small amount of trade. You could also include an EFTPOS service with your account.

Some business bank accounts charge for the number of transactions per month, while others offer a pay-as-you-go fee structure, where you only pay fees for transactions you make.

It’s up to you whether your priority is mainly transactions, or earning the maximum amount of interest on your principal. There’s a business banking solution for you if you need one.

Can a debt collector garnish my bank account?

A debt collector can garnish your bank account, but only with a court order. This drastic action is usually taken only if you’ve ignored several notices asking you to pay the debt.

If this happens, there is nothing you can do to stop it other than immediately pay back your what you owe in full or make arrangements to pay it off in installments.

Once a garnishee order is issued, your bank will put a freeze on your account as it processes the order. This usually takes two to three days and you won’t be able to access any of your money during this time.

If you have Centrelink payments, they may be protected, depending on what the court order says.

Are bank accounts frozen when someone dies?

Yes, Australian bank accounts are frozen when someone dies. If you want to close the account of somebody who has died, you might have to provide proof of death and a copy of the will. You might also have to prove your relationship to the deceased person.

If you have a joint bank account with somebody who has died, you will generally be entitled to all the money in the account. Again, you might have to provide proof of death if you want to change the bank account from a joint account to a one-person account.

How can I close a Commonwealth Bank account?

You can close your Commonwealth Bank account at any branch, provided you have appropriate identification. You can also close your account over the phone, by calling 132 221, 24 hours a day.

How do I open a bank account for a child?

There are few better ways for a child to learn about money management than through savings. And there’s a plethora of bank accounts designed specifically for young people and children.

A bank account for a child can be opened online, over the phone or in a branch in a few easy steps. The minimum age a child can open a bank account for themselves usually ranges between 12 and 14.

If the child is too young to open the account, you can do it for them as their legal parent or guardian. 

To do this, you would need to be over 18, have an Australian residential address and currently reside in Australia (or have proof of residency).

You would also need to provide:

  • Identification for yourself and the child
  • Your tax file number (TFN) or TFN exemption

Depending on the bank account, you might be able to choose what level of access the child has to their bank account (online and via the phone).

Can I close my bank account over the phone?

In most cases, you can close a personal or business bank account over the phone. In fact, this is the best way to ensure you’ve closed an account properly.

By speaking to a banking representative, you can capture and close out any pending transactions, or interest owing/payable on the account being closed.

In the instance where the account is a joint account, or you have multiple bank accounts you want to close, your bank may send you a form that you need to fill out and return.

Either way, you would be advised over the phone of the steps you need to take. Calling your bank ahead of closing an account is often a smart course of action.

Can I open a bank account in another country?

Despite having a bad rap for facilitating tax evasion, it is possible and legal to open a bank account in another country, also known as an ‘offshore account’.

Some people choose to open a bank account in another country to invest overseas, for higher interest-earning potential or to access foreign banking services.

The process for opening an offshore bank account differs depending on the financial institution and country in which you’re opening the account.

Typically, you will need to provide identification such as a passport, a local bank statement and a signed declaration proving the source of the money being used to open your account. Usually, deposits into offshore accounts can be made by international money transfer.