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Are the savings in our bank safe?

Posted by Ask_Josie on Nov 2nd, 2008

Q. I am wondering about savings we have with Suncorp Bank. Is it safe or should we pull it out for the time being also which banks have frozen accounts already?

Josie’s answer: If your money is sitting in a savings account within a bank, building society or credit union that is based in Australia, then the Government has guaranteed that you will not lose your money, for the next three years anyway. You will not find a better guarantor.

Foreign banks may be covered by the guarantee, provided they agree to pay a fee, but this can be a little confusing. For example, ING’s parent is based in Holland, but they are covered by the guarantee as they have an Australian subsidiary (up to a $1M. If greater than $1M then they will be charged a fee).

For example, institutions such as Duetche, Credit Suisse do not have an Australian subsidiary in Australia, just a branch office who reports to their parent overseas. Therefore, different rules apply to them. Some commentators argue that this is fair as they made the decisions they didn’t want to operate under the same rules and regulations that apply to our banks, building society and credit unions.

It is also important to understand that some cash management trusts, income and mortgage trusts are also not covered. I recommend that investors ring their financial adviser or the institution directly. This is causing all sorts of problems for the institutions who manage these types of trusts as large numbers of investors are requesting to withdraw their money. They had no choice but to freeze redemptions. Very stressful for retirees who want to access their money. However, I can understand. They have to protect all investors within the fund. For example, a mortgage trust invests in real property* which is illiquid - you just can’t sell quickly. It takes a long time to offload a 10 storey commercial property, and it would be foolish to sell at any price.

These are difficult times and thing are changing by the day. Keep up to date and if in doubt, don’t hesitate to ring Suncorp and ask for something in writing. Good luck.

Josie Kay