How safe is the money I put in a bank?



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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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