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

You would also be much safer if you just moved the money from the offset into the loan and paid down your debt.

 

An offset account is a deposit account so its protection is only $250K now also, they do not continue to have $1M protection.

 

Just consider how much will be crystalised as capital losses which would then be carried forward until it was offset against a capital gain.

 

So the loss in offset account will be treated as capital loss?

 

Correct....they reduced the govt guaranteed from $1m. Applies only to deposit/transaction account.
I am reasonably sure that other account types are not covered.

 

Why worry about something that isn't going to happen in oz?

Possibly.

Cash isn't necessarily treated as capital but in this case it may be considered as an investment or it may not.

 

Just as a matter of interest, does that 250K limit apply to each account or each loan? E.g if you take the equity and put it into seperate offset accounts against the one equity draw), is each loan covered to 250K or would they be counted together?

 

Its per person per institution, i.e. counted together. So if you had two offset accounts with 200k in each you could still lose 150K.

 

Now I wonder how many PC ers have more than $250k in offset/s all added up.

 

I'm not entirely sure, but I think it was a farm management fund, I don't believe it was a direct deposit.

 

It looks like the current cap is $250,000 per person per institution. http://www.guaranteescheme.gov.au/qa/deposits.html

And this is interesting

http://www.apra.gov.au/CrossIndustry/Documents/APRA-FCS-FAQ-ADI.pdf

The full rules are here at http://www.guaranteescheme.gov.au/rules/pdf/scheme-rules-20042011.pdf

 

If we know the rules we can structure our finances accordingly. Of course it is almost impossible that a big institution in Aus will go under, but isn't investing about mitigating risks? Why take a risk that you don't have to. Also, see below...

I will later this year/early next year. In the process of moving from one investment to another investment there will be a large amount of cash available. It is good to know the risks so that I can structure how the cash is held while we exit one investment and enter another. No point putting the money at risk for no reason.

 

Bank collapses are very real and common, most modern economies have experienced bank collapses in recent years. Banks are very fragile highly leveraged institutions that can collapse very quickly. I was working for one of them when the stuff hit the fan in 2008, many lost their jobs, the rest of us took a 20% pay cut. I think its funny that their shares are sometimes referred to as "Blue Chip" in Australia. The US alone has had about 80 large banks collapse in the last 7 years. I think it is inevitable that some Australian banks will collapse so the issue of offset account government guarantees, and spreading your cash around, is very important.

 

Why? It's happened before and I'm not talking the 1800's either. State banks of SA and Victoria both collapsed in the early 90's and Westpac nearly did.

 

@Casteller - banks in Oz aren't comparable to their OS cousins as they still operate in a highly regulated environment. APRA (although silent most of the time) has stringent controls over the ways that our banking system operates.

PS: Where's @Gockie?

 

I'm here.
I actually don't know any more than the rest of you on this topic, but to be honest I highly doubt you'd see my bank go under. I believe the Australian financial system would collapse if it did - too many people rely on my bank to be operational. It would ruin the whole Australian economy should it fail. Thus the need for so much regulation and intervention from APRA.

So anyway, I'd say what people are saying on the 250k guarantee per bank is correct so if you have that much cash in offset and savings accounts exceeding that amount (in total) I suggest your insurance will be to spread your savings around a bit...

 

But they are comparable to oz banks and building societies that collapsed in our last recession. As well as the banks listed in my last post Pyramid, Geelong and Country wide building societies come to mind. Unless they are doing something really stupid banks only tend to collapse in recessions. It's yet to be seen whether we will see bank collapses in our next recession and whether one of the big four will fall over.

 

I also bank with BankMECU (recently renamed to Bank Australia). It used to be a credit union but the government rules meant that it was attractive for that institution to upgrade to bank status and get bank licences etc. So now its Austalia's first wholly customer owned bank! It doesn't feel any different as a customer except that I guess you're not called a member but instead a customer, we had to use a new BSB when using our accounts and we get the 250k guarantee (didn't cover it before I believe). Otherwise as a customer it's business as usual.

 

Are you referring to moving from property to shares or other alternate investments or from one property market to another?

 

We do.....but as a couple, that means you can have $500k in each bank.

Prior to retiring we refinanced stuff & put into offsets, and we sold other stuff, so there's a fair bit in offsets at the moment, but we don't just use one bank either.