FROM Wednesday February 1st, the Federal Government Bank Deposit Guarantee will be substantially reduced. From that date, only deposits of up to $250,000 will be subject to a Guarantee without charge. Previously, deposits of up to $1 million were covered.
The concept of the government guaranteeing bank deposits is a recent one - the current guarantee was only introduced in 2008, at the height of the Global Financial Crisis, to stop people panicking and withdrawing all their money and placing it under the bed.
The guarantee covers all banks with a local banking licence as well as credit unions and building societies.
From emails I have been receiving it is clear that many people are concerned at the reduction in the amount of the Guarantee and are considering dividing up their funds and putting some with various banks.
Just mind that bank depositors rank ahead of bank shareholders. Therefore, for any Australian banker depositor to lose their money, it would first be necessary for all the shares in that bank to become worthless. Can you imagine what would happen to our stock market and the economy generally, if that happened?
I have total faith in the security of our Australian banks and will continue to be a bank shareholder. A far more realistic issue for most Australians is getting the best rate on their savings.
The fact that billions of dollars have lain idle in low interest bank accounts is a sad indictment of the inertia that affects far too many Australians.
Noel Whittaker is a co-founder of Whittaker Macnaught Pty Ltd. His advice is general in nature and readers should seek their own professional advice before making any financial decisions. His email is firstname.lastname@example.org