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 Deposits with balances below €100,000 were to have 6.75 per cent withdrawn, and 9.9 per cent was to be withdrawn from uninsured amounts above €100,000.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

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.

Which bank is best for business accounts?

Unfortunately, there’s no definitive answer to the question of which bank is best for business accounts. That’s because ‘best’ will differ from customer to customer, depending on their unique circumstances. These include not only your company’s financial position, but also its size, its age and the sector in which it operates. Another factor to consider is what features you want in a bank account. Your business may require different features than another business; and your business may require different features tomorrow than it does today.

The best thing to do is to thoroughly research the market before opening a business account. And when you do open an account, you should reassess your options every year or two, because the market moves quickly. A particular bank might offer the best account today, but be surpassed by one or several rivals tomorrow.

How do you open a bank account in Australia?

Opening a bank account in Australia is usually a straightforward process. Some banks give you the option of opening an account online, while others require you to visit a branch.

Different bank accounts offer different features, so it’s best to compare your options to find one that suits you.

All banks require you to pass an identity check to open a bank account. Australia uses the 100-point identification system, which means you’ll need to show a number of forms of ID that, together, add up to 100 points.

Common ID types include a driver’s licence, passport, Australian visa in a foreign passport, and Australian Medicare card. You’ll find out what types of ID are accepted when you go through the sign-up process online or at a branch.

Once your account is open, you’ll be given or sent a debit card that you can use to make purchases and withdraw money from your account.

Can Centrelink access your bank account?

Yes, Centrelink can access your bank account, but only if you give them a reason to. Centrelink uses data-matching software with other federal government agencies to help it crack down on welfare cheats.

This is why it’s important to give true and matching information to all government agencies.

For example, if you report to Centrelink your annual income is $25,000, but at tax time you report your income as $50,000 with the ATO, it’s likely you’ll be ‘red flagged’.

At this point, Centrelink can legally request that your bank hand over your personal bank account details, to review your finances.

In most cases, Centrelink does not have the authority to take money out of your account. You will usually be given written notice to repay the debt.

However, Centrelink can also reduce your benefits until you’ve paid back what you owe. In extreme cases, Centrelink can garnish your wages and assets (including money in your bank account) until your debt is repaid.

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).

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.

Can you get a payday loan without a bank account?

Yes. Some payday lenders are willing to transfer loans to prepaid debit cards instead of bank accounts.

Can I link a bank account to Paypal?

Paypal is a safe and convenient way to pay online without the need to share your financial details. You can send and receive money or accept credit and debit cards as a seller using Paypal.

It’s easy to link your bank account to a Paypal account and start making transactions within minutes.

To start, you first need a Paypal account (it’s free to join). When setting up your Paypal account, you will be prompted to link a credit card or bank account (or both if you wish).

PayPal works without a balance; you can use Paypal to shop or send money when your balance is zero.

When your Paypal balance is zero, Paypal will ask you to choose your preferred payment method at the checkout.

This could be either your linked bank account or credit card. Your bank details can be updated if you change banks or credit cards.

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 have a PayPal account without a bank account?

You don’t need a bank account to send or receive money through PayPal. However, you do need a bank account if you want to withdraw money from your PayPal account.

How long does it take to open a bank account?

The length of time it takes to open a bank account varies, depending on whether you want to open it online or in person.

Online

Most banks and credit unions have simple online applications that usually take no more than 10 minutes to fill out. It can be especially fast if you have your identification documents like your driver’s licence and passport handy. Sometimes you will instantly be approved and the bank account opened. However, depending on the financial institution, it may take a day or so to be processed and your account number issued. Your account information and ATM or debit card will then be mailed to you, which usually takes between five to 10 days.

In person

If you decide to go into a branch or office to open a bank account, it may take about half an hour. Make sure you bring your identification documents with you. Also book an appointment if you can, otherwise you might be forced to wait in line. Sometimes your ATM or debit card will be issued on the spot, otherwise you’ll need to wait for one to arrive by mail, which usually takes between five to 10 days.

Do you need a bank account to get a credit card?

To get a credit card, you need to show proof of income, which will almost certainly require you to have a bank account.

Can debt collectors take money out of your bank account?

Many people find themselves struggling to cope with debt at one time or another. In these cases, a debt collector could contact you to demand payment for a debt, to explain the consequences of you failing to pay a debt, or to organise alternative payment arrangements.

If you’re contacted by a debt collector, you may be wondering what their rights are and whether they can take money out of your bank account.

Creditors cannot access money in your bank account unless a court order (also known as a ‘garnishee order’) is made to allow creditors to recover debt by taking money from your bank account or salary.

If this happens, the creditor can take money out of your bank account unless you pay the debt in full or make an alternative payment arrangement such as paying in instalments through the court.

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.