Security of an offset account if bank goes under

Hi everyone,

I see and hear a lot of investors saying it doesn't matter if your loan is with the big 4 or a small non bank lender.

With regard to interest only loans coupled with a sizeable offset account, if the bank went under (bankrupt), what would happen to the money in the offset account?

I hope that makes sense.

Kind Regards,
db9

 

The money would be lost - but there is a federal goverment guarantee for deposits of up to $250,000

 

Thanks for the quick reply! Does this guarantee apply to all financial institutions? I was under the impression this only applied to the big 4 banks.

 

No it doesn't apply to all, but it applies to many more than just the 4 big banks. There is a thread on here somewhere with some research that I did.

 

Awesome! Thanks I'll search for that. Thanks for the help Terry_w

 

Redraws would probably be cancelled when the debt is sold. Similar with unused LOC amounts.

At least with an offset account you could quickly withdraw the cash if need be - without tax consequences too.

 

Equivalent of a bank run!

The federal government will likely step in and do what they can to protect it (it would be massive financial chaos if people thought their cash was at risk in offset/transaction accounts).

There'd also likely be a little bit of notice beforehand - your not going to wake up tomorrow in a state of economic and financial chaos, there'll be forewarnings of major risks beforehand.

There is a government guarantee of $250k deposit per bank too, to protect against bank runs.

Out of interest, there's a tale where one bank manager who feared a bank run during a major economic crisis stocked his front window with gold bars. It gave the illusion to people that the bank was more than safe (and apparently it worked!).