Government Deposit Guarantee

Updated, 12 October 2011

On Sunday, 12 October 2008, the Australian Government announced its intention to guarantee deposits in Australian banks, building societies, credit unions and Australian subsidiaries of foreign-owned banks.

On 7 February 2010, the Australian Government announced that effective 31 March 2010, the guarantee on deposits of over $1 million would be progressively withdrawn. This announcement did not impact deposits of under $1 million, which continued to be guaranteed free of charge under the Financial Claims Scheme (FCS).

On 11 September 2011 the Australian Government provided further details on the progressive withdrawal of the FCS. Effective 1 February 2012 the guarantee will be reduced to a new permanent cap of $250,000 per customer per authorised deposit-taking institution (ADI), with transitional arrangements for term deposits. Effective 12 October 2011 Foreign currency deposits are no longer covered.

Below we have set out NAB’s understanding of the Government Deposit Guarantee scheme and what it means for our customers. Details may change over time.

Frequently asked Questions on the Government Deposit Guarantee

How much money is covered by the FCS?

All deposits are currently guaranteed to a maximum of $1 million per customer per ADI until 1 February 2012. From 1 February 2012 the Commonwealth Government will reduce the guarantee cap to a maximum of $250,000 (per customer per ADI).

For term deposits that were opened on or before 10 September 2011, the $1 million guarantee cap will apply until 31 December 2012 or until the deposit matures, whichever occurs sooner, however if a term deposit matures and is rolled over in this period, then the new $250,000 guarantee cap will apply from the rollover date. For more information please refer Term Deposit Transitional Arrangements (PDF, 60KB).

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Why has the cap been reduced from $1 million to $250,000?

The original guarantee cap, set at $1 million in October 2008, was intended as a temporary measure to assist the financial system through a particularly turbulent period. At that time, the Australian Government committed to review the settings of the FCS after three years. The new guarantee cap reflects the soundness of the Australian financial system and brings the scheme more into line with its counterparts in other countries.

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How long will the new scheme guaranteeing deposits to $250,000 be in place? Will there be another revision of the guarantee cap?

The $250,000 guarantee is designed to be a permanent guarantee scheme. There is no expiry date for the new guarantee cap.

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Is there any way to be guaranteed above $250,000?

In the past we've been able to offer products that provided guarantees for amounts above the guarantee cap (for a fee). This arrangement with the Commonwealth Government is no longer available; therefore the maximum of $250,000 per customer per ADI will apply from 1 February 2012 (with a transition period for term deposits).

Existing additional government guarantee accounts will be unaffected (provided they continue to pay the fee) however note that the additional guarantee is only for amounts above $1 million, amounts between $250,000 and $1 million will not be covered by the arrangement.

This will only impact customers in the unlikely event that NAB becomes insolvent. NAB remains in a strong and stable position. Over the past 150 years, NAB has grown to become one of Australia's most successful banks, and one of the world's strongest banks. Our strong capital position provides our investors with greater security.

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What if I have money spread between NAB and other banks?

The government guarantee is applied on a per customer per ADI basis. Each legal entity (e.g. person, business, partnership or trust) is classified as a separate customer and can have up to the deposit limit guaranteed per ADI.

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How does the FCS apply across multiple accounts with one ADI?

The FCS applies per customer, per ADI. It is applied on an aggregated basis across all eligible deposit accounts held by a customer with the ADI.

E.g.: New guarantee cap of $250,000:

  • A customer has three deposit accounts each containing $100,000.
  • These three accounts are held with one ADI, meaning that the customer holds a total of $300,000 with this ADI.
  • These accounts are added together and the FCS protects the customer up to $250,000 (From 1 Feb 2012).
  • The remaining $50,000 is not guaranteed by the FCS and will need to be claimed through the liquidation process in the unlikely event of insolvency.

E.g.: Combination of accounts, including a term deposit:

  • A customer has a term deposit opened or before September 10th 2011 for $300,000 and a savings account with $50,000
  • These two accounts are held with one ADI, meaning that the customer holds a total of $350,000 with this ADI.
  • These accounts are added together and the FCS protects the customer up to $300,000, being the amount in the term deposit, (from Feb 1 2011) until 31 December 2012 or until the deposit matures, then the customer will be covered up to $250,000.
  • The remaining funds are not guaranteed by the FCS and will need to be claimed through the liquidation process in the unlikely event of insolvency.

E.g.: Combination of accounts, including term deposit

  • A customer has a term deposit opened or before September 10th 2011 for $100,000 and a savings account with $200,000
  • These two accounts are held with one ADI, meaning that the customer holds a total of $300,000 with this ADI.
  • These accounts are added together and the FCS protects the customer up to $250,000, being the maximum amount covered by the FCS per customer per ADI (from Feb 1 2011).
  • The remaining funds are not guaranteed by the FCS and will need to be claimed through the liquidation process in the unlikely event of insolvency.

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What about joint accounts?

In the case of joint accounts, a depositor's share of the joint account will be added to their other deposits and the FCS cap will be applied to the total amount. Each depositor maintains an individual guarantee up to $250,000 each, per ADI.

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What is a legal entity?

NAB's understanding is that, where a single legal entity holds accounts in its own capacity and also in its capacity as trustee, there are two different account-holders - the first being the entity acting in its own capacity, and the second being the entity acting in its capacity as trustee.

Further, if the entity acts as trustee for two separate trusts, it is a separate account-holder in relation to each such trust. As the deposit guarantee is determined on a per account-holder basis, this means that a single legal entity can have the benefit of multiple deposit guarantees if it holds accounts in multiple capacities.

By way of example, if ABC Pty Ltd holds accounts in its own name, as trustee of the X Trust and as trustee of the Y Trust, it will have 3 separate deposit guarantees; one in relation to the aggregate deposits it holds in it own name, one in relation to the aggregate deposits it holds as trustee of the X Trust, and one in relation to the aggregate deposits it holds as trustee of the Y Trust.

Please note that this is NAB's understanding of the government deposit guarantee scheme as it currently stands. We strongly recommend that you seek your own legal and financial advice in relation to the operation of the scheme, and that you monitor any changes to the scheme, to determine how it affects you.

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How are Statutory Trust Accounts, for example Real Estate Trust Accounts, treated?

The trustee is the account holder, or legal entity, for the purposes of the guarantee, not the beneficiaries of the trust. Accordingly, Statutory Trust Accounts (STAs) have an individual $250,000 threshold. We strongly recommend that you seek your own legal and financial advice in relation to the operation of the scheme, and that you monitor any changes to the scheme, to determine how it affects you.

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Which authorised deposit-taking institutions are covered by the FCS?

The FCS applies to deposits held with ADIs incorporated in Australia. This includes: Australian banks, building societies and credit unions; and Foreign subsidiary banks.

Please refer to the APRA website for a full list of ADIs.

The FCS does not apply to deposits held in the following types of financial institutions: branches of foreign-incorporated ADIs operating in Australia (listed as 'branches of foreign banks' on the APRA website); branches of Australian-incorporated ADIs operating overseas; Specialist Credit Card Institutions and Providers of Purchased Payment Facilities; and interest-bearing investments in finance companies and other institutions that are not ADIs supervised by APRA.

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If all Australian banks are covered under the Government Guarantee, why would I choose NAB over a lower tier bank that may provide a higher interest rate?

NAB remains in a strong and stable position. Over the past 150 years, NAB has grown to become one of Australia’s most successful companies, and one of the world’s strongest banks. Our strong capital position provides your investments with security. Primarily, NAB’s strength is through its relationship model with customers – we work closely with our customers to understand their full requirements, both personal and business.

NAB customers have the advantage of our extensive local banking network across Australia, including local branches and specialist mobile bankers in your home as well as our advanced phone and internet services, making everyday banking smarter and simpler.

NAB Private Wealth offers the full spectrum of banking and wealth management services to clients with more sophisticated financial needs. We partner with our clients along every stage of their financial journey assisting them to understand, create, protect and transfer their wealth Our capabilities include personal relationship banking, wealth planning and protection, investment market strategies, investment market transactions, philanthropy and trust and estate planning.

From a business customer perspective, we are Australia’s largest and fastest growing business transactional bank, we offer an extensive range of solutions to help maximise our customer’s cash flow. We have money to invest in good Australian businesses - and we're open for business. NAB has the largest footprint of Business Banking Centres. Our bankers are empowered to make decisions locally, having access to a wide range of banking specialists to add value to your customer’s businesses, including Transactional Banking, Asset Finance and Trade specialists and Financial Planners to support you across all stages of your life.

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Are offshore deposits covered?

Deposits denominated in Australian dollars made at NAB branches offshore will be covered by the government guarantee, until legislative changes take effect to remove them from its scope – this is expected to occur in late 2012. The government guarantee applies to the deposits regardless of where the depositor resides.

Deposits made at branches of international subsidiaries of the NAB Group (BNZ, Clydesdale Bank, Yorkshire Bank, Great Western Bank) are not covered by the Australian Government’s guarantee.

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What types of deposit accounts are covered by the FCS?

The FCS applies to a wide range of deposits held with ADIs, including:

  • savings accounts;
  • call accounts;
  • term deposits;
  • current accounts;
  • cheque accounts;
  • debit card accounts;
  • transaction accounts;
  • personal basic account;
  • cash management accounts;
  • farm management deposits;
  • pensioner deeming accounts;
  • mortgage offset accounts, either 100 per cent or partial offset, that are separate deposit accounts;
  • trustee accounts;
  • retirement Savings Accounts; and
  • first home saver accounts that are deposit accounts.

The FCS applies to deposits denominated in Australian dollars. From 12 October 2011 foreign currency deposits are no longer covered.

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What types of deposits are not covered?

The government guarantee does not apply to market-linked investment products such as share portfolios or managed funds. The Australian Government has said these products “provide an incentive for investors to pursue higher returns through investments that may involve greater risks”. It will also not apply to retirement income products including annuities. Foreign currency accounts (including term deposits) are no longer be covered by the FCS.

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Does the Government Guarantee include Foreign Currency deposits?

The FCS applies to deposits denominated in Australian dollars. From 12 October 2011 foreign currency deposits are no longer covered.

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What are the tax implications?

Customers are advised to speak with a tax specialist to receive guidance on tax implications.

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When would the FCS apply?

The FCS applies when the Australian Prudential Regulation Authority (APRA) has decided to use its powers under the Banking Act 1959 to place an ADI into wind-up (liquidation) and when the Treasurer determines that the FCS will be applied to that ADI.

The FCS would only be used in a situation where an ADI is insolvent or severely under-capitalised, and where the best course of action is to close the ADI and wind it up.

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Who will administer the FCS if it is invoked?

APRA is responsible for the administration of the FCS and for making payments to depositors.

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Who provides the money to make payments under the FCS?

The Australian Government initially provides the funds to make payments under the FCS. Monies paid under the FCS are then recovered from the ADI in the winding up process. There is provision to make up any shortfall by applying a levy on the ADI sector.

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How will deposits be repaid under the Financial Claims Scheme?

As administrator of the FCS, APRA is responsible for determining the amounts payable to each depositor and for arranging the payments to depositors. The means of payment will be determined according to the circumstances of the failed ADI. Options include, but are not limited to:

  • payment by cheque;
  • electronic transfer of funds into bank accounts nominated by depositors at another ADI; or
  • electronic transfer of funds into new bank accounts opened by APRA in the names of depositors in a designated ADI.

Depositors will be advised how their deposits will be paid to them and what actions they need to take to access their money.

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How quickly will payments be available?

APRA will aim to pay eligible depositors their money as quickly as possible. For basic, non-complex accounts, particularly transaction and at-call accounts, it is intended that depositors will receive or be able to access their funds (up to the cap applicable at the time) within 7 days of the FCS being invoked. Other accounts may take longer.

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How will deposits held in foreign currency be treated?

Foreign currency coverage will cease on 12 October 2011.

In the case of deposits denominated in a foreign currency, the amount will be converted into Australian dollars at the exchange rate prevailing at the time FCS is invoked.

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Further information on the FCS

APRA is in the process of finalising requirements and guidelines on the administration of the FCS. You can view the initial discussion paper issued in January 2010 and APRA’s response paper and draft reporting requirements issued in August 2010 in the 'Policy' section of the APRA website here.

For further information, customers can visit the Government website or contact the Government Guarantee Scheme Enquiries line on toll free 1800 013 806.

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Important notice

National Australia Bank Limited, ABN12 004 044 937, AFSL 230686 (NAB) is the issuer of each financial product mentioned in this fact sheet except for the A1 Common Fund which is issued by National Australia Trustees Limited ABN 80 007 350 405, AFSL 230703 . Any advice in this fact sheet was prepared without taking into account the objectives, financial circumstances or needs of any particular person. Before acting on the advice you should consider the appropriateness of the advice having regard to your particular objectives, financial circumstances and needs. Where the advice relates to a financial product, you should obtain and consider the Product Disclosure Statement or other disclosure document, available from the NAB, before making any decision in relation to the product.