How safe is the money I put in a bank?

How safe is the money I put in a bank?

Depositing your money with an Australian lender is about as safe an investment as you could make.

That’s why savings accounts pay low rates of interest – as a general rule, investments with lower risk offer lower returns.

But while savings accounts are extremely safe investments, it’s important to note that no investment can ever offer 100 per cent certainty. Lenders can collapse; economies can crash. Such events are unlikely, but they can’t be ruled out entirely.

Why depositing money in Australia is so safe

There are two main reasons why depositing your money with an Australian lender is safe – deposits are a safe investment and Australia is a safe country.

Australia is known for its political and economic stability. This is partly due to the work of the Reserve Bank of Australia, Australian Prudential Regulation Authority (APRA) and Australian Securities and Investments Commission (ASIC). These bodies aim to keep the economy, the banking system and the financial services system strong and secure.

That means the money you deposit in a bank is highly unlikely to be stolen by the government or eaten up by hyperinflation, as happens in some countries.

To further protect savings, the federal government has created the Financial Claims Scheme.

Under this program, the government has guaranteed to protect up to $250,000 for each account holder at each licenced bank, building society or credit union incorporated in Australia. There are approximately 150 lenders covered by the Financial Claims Scheme – click here to see the full list.

The other reason it’s safe to put your money in savings accounts is that they offer a definite rate of return (i.e. the interest rate). That contrasts with investments such as property, shares and managed funds, where the returns are uncertain and you could even lose money.

Why depositing money in Australia is not 100% safe

Even though depositing your money with an Australian lender is extremely safe, no financial investment can ever offer total certainty.

For starters, the Financial Claims Scheme only covers up to $250,000. So if you had $400,000 deposited with a lender, and that lender collapsed, you could lose $150,000.

There is an obvious way around this risk – deposit, say, $200,000 with one lender and $200,000 with another. That way, both deposits are covered by the government guarantee.

However, there is another risk: the government can abolish the Financial Claims Scheme whenever it likes. There is nothing to stop the government abolishing the guarantee tomorrow or in the next Budget or even during a future crisis.

The deposit guarantee was established in 2008 during the Global Financial Crisis, when overseas bank collapses made people fear for the security of Australian lenders. This guarantee is most relevant during a time of crisis – but it is also at such moments that governments are at their weakest economically. So although it is extremely unlikely, it is possible the government might abolish the guarantee if it was ever placed under severe economic pressure.

Banks v mattresses

That said, it should again be stressed that depositing your money with an Australian lender is an extremely safe investment.

The chance of a lender collapsing is remote – and if it did, the chance of the government fulfilling its guarantee is high.

Of course, you could put your money under your bed instead.

If you did, it would be much easier to access. However, it wouldn’t earn interest, it wouldn’t be guaranteed by the government and it might be stolen by intruders.

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Learn more about savings accounts

How to make money with a savings account?

Savings accounts make you money by earning interest on your savings. The more money you deposit, the longer you leave it in the account, and the higher the account’s interest rate, the more interest you’ll be paid by the bank or financial institution, and the more your wealth will grow.

To make sure your savings account makes money and doesn’t lose money, it’s important to maintain a large enough minimum balance that the annual interest earned exceeds any annual fees charged on the account.

What is a savings account?

A savings account is a type of bank account in which you earn interest on the money you deposit. This makes it one of the easiest and safest investment tools.

What is a good interest rate for a savings account?

A good rule of thumb to keep in mind with savings accounts is to look for a rate that is higher than the CPI inflation rate. This number is constantly changing, so check the Reserve Bank of Australia’s page. If you aren’t earning interest above this then the value of your money will go backwards over time.

Can you set up direct debits from a savings account?

It’s not usually possible to set up a direct debit from your savings account to cover ongoing expenses or bills, as savings accounts are structured around growing your wealth by earning interest on regular deposits, and discouraging withdrawals.

Some transaction accounts allow you to set up direct debits and also earn interest, though you may not enjoy as much flexibility as a dedicated transaction account, or get as high an interest rate as a dedicated savings account.

How do I open a savings account?

Opening a savings account is a relatively simple process. If you’ve found an account with a suitable interest rate, you’ll just need to get in contact with your chosen lender via a branch, phone call or hop online to begin the process. 

You may be required to provide:

  • Personal details, including identification (driver’s license, passport etc.)
  • Tax file number
  • Employment details

How much money should I have in my savings account?

A good rule of thumb when working out a minimum balance for your savings account is to make sure that you’ll earn more in annual interest on your savings than what you’ll be charged in annual fees.

If you’re saving with a specific goal in mind, prepare a budget so the interest you earn on your deposits will help you efficiently reach this goal. Online financial calculators may be helpful here.

How to open a savings account for my child?

Some banks and financial institutions allow parents to open a bank account for their child as soon as it is born, and start depositing funds to go towards the child’s future.

Children’s savings accounts generally don’t have fees, and are structured to help develop positive financial habits by limiting withdrawals, encouraging regular deposits, and earning interest on the savings, similarly to standard savings accounts.

Who has the highest interest rates for savings accounts?

As banks frequently change their rates, the most accurate way to know who currently has the highest interest rate is to use a savings account comparison tool.

How does interest work on savings accounts?

The type of interest savings accounts accrues is called compound interest. Compound interest is interest paid on the initial deposit amount, as well as the accumulated interest on money you have. This is different from simple interest where interest is paid at the end of a specified term. Compound interest allows you to earn interest on interest at a higher frequency. 

Example: John deposits $10,000 into a savings account with an interest rate of 5 per cent that he leaves untouched for 10 years. At the end of the first year he will have $10,512 in savings. After ten years, he will have saved $16,470.

What is the interest rate on savings accounts?

As banks frequently change their rates, the most accurate way to look at interest rates on savings accounts is to use a savings accounts comparison tool. When you look at the savings rate check what the maximum and minimum rates are. Often banks will offer you a promotional rate for the first few months which is competitive, but then revert back to a base rate which can sometimes be less than inflation. Ongoing bonus rates are often a safer bet as they will keep rewarding you with the maximum rate, provided you meet their criteria

Can I overdraft my savings account?

A lot of savings accounts won’t let you overdraw. Some will allow this feature but you’ll need to apply first. It’s best to read the fine print and check with your lender whether this is a feature they offer. It can be a helpful addition, but as your lender can charge you a fee as well as interest for going into negative numbers, it’s best to avoid overdrafting when possible.

Can you direct deposit to a savings account?

Yes. You can make one off payments or set up regular direct deposits into a savings account. This can be organised easily through online banking or by making deposits in a branch. Talk to your lender to find out the easiest way for you to set up direct deposits.

Can you have a joint savings account?

Yes. Joint savings accounts can be useful for two or more people wanting to combine their savings to meet shared financial goals, including spouses, flatmates and business partners.

Some joint savings accounts require all parties to sign before they can access the money. While less convenient, this extra security can help encourage all parties to meet their shared financial goals.

Other joint savings accounts allow any of the account holders to access the money. These accounts can be convenient for financially responsible couples that trust one another implicitly. 

Can you set up a savings account online?

Yes. Several large and small banks offer online applications for savings accounts, and there are also online-only financial institutions to consider.

Online-only savings accounts are often less expensive than other savings accounts, though they may not offer the same flexibility, features, or face-to-face service as more traditional savings accounts.