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If bank goes bankrupt, will the savings in offset account disappear?

Discussion in 'Property Finance' started by Kangaroo, 17th Oct, 2015.

  1. Kangaroo

    Kangaroo Well-Known Member

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    I am a layman in finance. I have query which has not got answered for a long time.

    Lots of people use offset accounts to reduce their borrowing to maintain the flexibility. I assume the offset account is the same as Save/Deposit account. When a bank defaults( it happened before), the cash in offsetting account simply goes with it and the loan book will remain. So the property purchaser has to repay the debt from scratch again ? Is it right ? In this aspect, loan account with redrawing ability is better than offsetting account ?
     
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  2. JohnPropChat

    JohnPropChat Well-Known Member

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  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    an offset account is a debt - the bank owes you money. If the bank becomes insolvent then into liquidation there may be not enough funds to pay its creditors so those with offset accounts will become unsecured creditors. Your only hope is the government guarantee.

    Those with loans owe the money to the bank, so it is different and they liquidators could only chase you for what you owe. This debt would also be sold to another entity and you would have to then repay them instead of the bankk
     
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  4. C-mac

    C-mac Well-Known Member

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    Does that mean that (for example), if a particular bank was constantly in the news as 'about to go under' and you have a mortgage debt with them, plus an offset account with say $300k parked in it; you could just move the $300K to your 'savings' account and it would be safe? (I.e. if the bank then folded, they would have to pay out all savings accounts to their creditors).
     
  5. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Keep in mind that an offset account is really just another savings account. It's set up to save interest on the mortgage rather than earn you interest.

    The government backing was brought in during the GFC, it actually destroyed quite a few smaller lenders. The government didn't back every financial institution, only the larger ones. There was a run on the smaller players which cause them to lock people out of withdrawing money. The entire event caused the collapse of quite a few groups which saw the bigger banks buy them out at a bargain price. As usual the big banks get bigger at the expense of the smaller players (thanks government safety net).

    If a major bank goes under, in theory the government would bail out the savings accounts. In reality the economy would collapse, your best investment would be food, fuel, guns & ammo.
     
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  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    No. An offset account is a savings account so same effect. I would move it to another bank if some heard something like that! Maybe 3 banks
     
  7. Casteller

    Casteller Well-Known Member

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    I would never have more than 100K in an offset account for this reason, or a savings account. Withdrawals would be restricted before you had a chance to move it out or into the loan.
     
  8. Scott No Mates

    Scott No Mates Well-Known Member

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    Buy shares in the bank of Nigeria or Botswana - much safer than a bank in a triple A rated economy.

    Even the US & UK bailedout their banks during the GFC as their economies would have been left with greater issues had they not intervened.
     
  9. Ed Barton

    Ed Barton Well-Known Member

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    Bank runs are a self-fulfilling prophecy, even more so in our currently interconnected banking system.

    If there were rumours Ed Bank was going tits up (even if it wasn't) all Ed Bank customers would be draining their accounts for cash. Unlike the past where you had to line up at Ed Banks branch to get your money, customers would be draining all banks ATMS, branches, petrol stations, coles etc.

    If all Australians withdrew $500 surplus to their immediate requirements there would be widespread panic and possible widespread banking collapses.
     
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  10. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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  11. sash

    sash Well-Known Member

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    Great question!

    The government insurances deposits up to $250k it was brought down from $1m 3 years ago or so. It only applies to deposit accounts...so Offsets are fine.

    Not sure about LOC as it is treated a mortgage product.

    Note that the chances of one of the top 10 banks going down is very slim!
     
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  12. devank

    devank Look, lets just get on with this, ok? Premium Member

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    How come liquidators of OneTel didn't chase me for remaining payments for the phone? Aren't they kind of same concept expect lot lower value?
     
  13. Matty77

    Matty77 Active Member

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    Last time a bank went broke in Australia?
     
  14. Kangaroo

    Kangaroo Well-Known Member

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    Vaguely remembered there was a bank called Pyramid in Melb collapsed in late 80s or early 90s ? Watched it on the TV but not enough details remembered.
     
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  15. larrylarry

    larrylarry Well-Known Member

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    Is everyone panicking?
     
  16. Perthguy

    Perthguy Well-Known Member

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    Not me. But I really think the OPs question is a sensible question and I wouldn't interpret it as panicking. It's good to know the limit is $250k.
     
  17. Scott No Mates

    Scott No Mates Well-Known Member

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    Pyramid was a building society not a bank. Different rules.

    I hear that the bank of uptopia is quite competitive.
     
  18. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    A couple of years ago a fairly large credit union (Banksia I think) went down. My parents are getting back less than 10% of what they had in there.

    Financial institutions do die from time to time. It's usually the depositors and mortgagors that suffer the most.
     
  19. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes you had a binding contract with them I presume so they could have. But I presume the service stopped so that may have allowed you to terminate.
     
  20. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Peter was that deposits or investments in some sort of mortgage product?