What happens to your money if your bank suddenly collapses?

Nov 26, 2019
If your bank comes crashing down - does your money go with it? Source: Getty.

The royal commission into misbehaviour in the banking sector, coupled with the headlines about Westpac’s failure to police money transfers, may have you thinking about the safety of Australian banks. But what happens if the issues at a bank become so severe that it collapses?

It’s the question that anyone with money in the bank is sure to have mulled over at one point in their lives, but luckily for Australians, the government has laid out a fool-proof plan known as the Financial Claims Scheme (FCS).

What is the FCS?

The FCS began as an immediate response to the Global Financial Crisis in 2008 which saw the largest recession since the Great Depression and infamously wiped accounts all over the world. The scheme was pushed forward by the Australian Parliament in an effort to protect deposits in banks, building societies and credit unions and ensure the future stability of the national economy should another financial crash occur.

Under the scheme, certain deposits are protected up to a limit of $250,000 per person, per institution in the event of a bank closure. This is why it’s recommended that those who have more than this amount in savings should separate their deposits between different institutions to reduce the risk of losing money in the case of a collapse.

The FCS will only come into effect if activated by the Australian Government when an institution fails. Once activated, the scheme will be administered under the watchful eye of Australian Prudential Regulation Authority (APRA).

What is covered by the FCS?

The FCS covers institutions that are incorporated in Australia and authorised by APRA that are Australian banks, foreign subsidiary banks, building societies, credit unions and certain other authorised deposit-taking institutions.

Meanwhile, accounts that are not accepted under the scheme include branches of foreign banks in Australia, foreign branches of Australian banks that are located overseas and finance companies and other financial institutions that are not authorised by APRA. This leaves all domestic banks to be covered by the scheme however, account holders can check the full list of approved banks on APRA’s website.

How do I get my money back?

APRA takes care of the redirection of deposits in a number of ways, which is dictated by the account holder. Payments can be made by cheque, electronic funds transfer into a nominated bank account or payment into an account of the same kind at another financial institution that APRA would establish on behalf of the account holder.

Payments are made surprisingly quick, with APRA endeavouring to transfer the funds within seven working days, however some circumstances may take longer. Payments under the $250,000 threshold will also be adjusted to include the interest up to the time of the declaration of the FCS but also deduct fees, charges and tax from the overall amount.

Important information: The information provided on this website is of a general nature and for information purposes only. It does not take into account your objectives, financial situation or needs. It is not financial product advice and must not be relied upon as such. Before making any financial decision you should determine whether the information is appropriate in terms of your particular circumstances and seek advice from an independent licensed financial services professional.

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Have you ever wondered what happens to your money if your bank fails? Did you know about the FCS?

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