Big 4 banks being supported - what happens to 2nd tier?

To follow up on this, a friend of mine asked Firstmac what would happen to funds in their offset account if Firstmac went broke, the response was as below:

They also received the below letter from them:


Thoughts on whether it's safe to keep funds in the offset (redraw??) account?

 

Define safe. All that says is that you will not be in the situation where they take your 'offset redraw' balance and stick you with the loan balance. Instead it's ALREADY BEEN REPAID INTO YOUR LOAN. So they've just confirmed it's a redraw, NOT an offset.

They've just confirmed that they can close the redraw at their discretion. So the risk assessment isn't whether they can take the 'balance' (it's already gone into the loan) but the probability that they might close the redraw.

You may not 'lose' any money, but you lose quick access to it, which is a huge advantage of a true offset, even ignoring the tax implications.

Are you comfortable with the risk that you might need the money and they just use it to pay off the loan? Then you have no option but to sell. Which can take at least 4-6 weeks?

The risk increases if you decide to move money from other genuine offsets into this redraw.

Your friend asked the wrong question because they don't understand what the actual risk is.

 

Thanks @Trainee, it's weird that they call it an offset account if it really functions as a redraw...

@Rolf Latham would be keen to hear your thoughts re this...

 

For tax reasons it operates as if it is an offset account as deposits into it do not reduce the balance on the loan account.

I can't see much difference really with a main stream bank.

 

Note this only covers their 'deposit products' i.e. term deposits. It does not cover their offset accounts. So it's really like most (all?) non-bank lenders
Home Loans - Firstmac

 

Its a repayment of debt so it basically doesn't matter that the guarantee doesn't apply.

 

If you owe the bank money, they're the ones that need a gurantee.
Not the other way around.