Encompass Credit Union Welcomes Government Deposit Guarantee Friday, 31 October 2008
Government Deposit Guarantee Scheme
Frequently Asked Questions
What is the Government deposit guarantee?
Deposits in APRA regulated Authorised Deposit-Taking Institutions (ADIs) – banks,
building societies and credit unions – are guaranteed by the Australian Government.
This means that a full Government guarantee stands behind deposits in all Australian
banking institutions – credit unions, banks and building societies.
What deposits are covered?
All deposits are covered. A wide range of deposit accounts are covered by the
scheme, including savings transaction accounts, cheque accounts, term deposits,
online savings, pensioner deeming accounts, retirement savings accounts and first
home saver accounts.
More information is available on the Treasury website www.treasury.gov.au.
What is the guarantee threshold?
The Government recently announced that it will introduce new arrangements for
“high value” deposits after the 28 November. All deposits of up to than $1 million
held with your credit union or building society (or bank) will continue to be fully
guaranteed by the Australian Government.
After 28 November, deposits over $1 million can still have a full Government
guarantee, provided that your banking institution pays an optional fee. If you have
deposits over $1 million, contact your credit union, bank or building society to talk
about these new arrangements.
What fee will ADIs pay to receive the guarantee?
There is NO CHARGE for the Government guarantee on retail deposits (under $1
million). The Government is still fine tuning its plans but for deposits over $1
million, each banking institution will pay a fee based on a scale released by the
Federal Treasury. For most credit unions and building societies this fee will be 1.5%.
Will the fee apply to the whole deposit or just the portion above $1 million?
The fee will only apply to the portion of the deposit above $1 million.
Do deposits over $1 million have to be guaranteed?
No. The guarantee of the value of deposits over $1 million is optional. You should
discuss your needs with your credit union or building society.
What happens if I have more than one account with my credit union or
building society?
The guarantee threshold applies to the total value of your deposit accounts at your
credit union or building society. If your total funds are less than $1 million, all your
deposits are Government guaranteed at no cost. If your total deposits total more
than $1 million, then you can elect to guarantee this in consultation with your credit
union or building society.
www.abacus.org.au
What sort of depositors are covered?
The guarantee will apply to all deposits held by legal entities, including individuals,
partnerships, companies, trusts and government entities regardless of where the
depositor resides or is based.
What about joint accounts?
Joint accounts are Government guaranteed under the guarantee scheme. For the
purposes of calculating a member’s total value of deposits at the credit union or
building society, the value of a joint account is split evenly between the account
holders.
Therefore, a joint account with a value of $1 million would be split equally into
$500,000 shares between the account holders for the purposes of determining a
member’s total value of deposits.
What fee will large deposits of 3 and 6 month term deposits attract?
Deposits of less than $1 million are guaranteed at no cost.
Guaranteed deposits of over $1 million held for less than 12 months will attract a
pro-rated annual fee. That is, a three-month deposit will attract a fee of one quarter
of the annual fee of 1.5%.
How will the fee for large deposits (over $1 million) be calculated?
Details are still being finalised, but fees are likely to be paid by ADIs quarterly in
arrears.
Where does the fee for large deposits go?
The fee would be paid to the Reserve Bank of Australia.
How do ADIs apply to the RBA to receive the guarantee?
ADIs wishing to offer the guarantee on deposits over the $1million threshold will
need to ‘opt in’ to the scheme by entering into a deed with the RBA. Details are still
being finalised on how the formal application process will work. Abacus will issue
further updates to members as available.
Sunday, 12th October, 2008
Credit unions and mutual building societies welcomed today’s decision by the Government to guarantee deposits with all of Australia’s credit unions, banks and building societies.
"The Government is reassuring Australians that their credit union, building society or bank is a safe haven for their savings," said Ms Louise Petschler, CEO of Abacus – Australian Mutuals, the industry body for credit unions and mutual building societies.
"We’re pleased with the Government’s strong and decisive move, which is supported by the soundness of our financial system," said Ms Petschler.
"The guarantee removes any worry for Australians and means that every deposit with a credit union, bank or building society has full Government support."
All deposits with deposit-taking institutions will be treated the same way, covering credit unions, building societies and banks equally for the next three years. Abacus, the industry body for mutual banking institutions, has been in close consultation with the Government on its plans. Abacus also endorsed the Government's decision to remove any "cap" for deposit guarantees, saying this provided the best outcome for confidence and stability.
"Mutual banking institutions offer conservative, strong and member-focused banking to more than four and a half million Australians."
"As Authorised Deposit-taking Institutions, credit unions and building societies meet exactly the same strong regulatory framework as banks under the Banking Act 1959, including strict prudential standards on capital, liquidity and credit risk," Ms Petschler said.
"Our sector's performance as prudent and responsible ADIs means that we collectively hold a larger share of Australian household deposits than any bank other than the CBA."
"Our deposit books continue to grow as Australians continue to choose mutual banking institutions to look after their hard earned savings, and provide their banking needs."
"Australians choose credit unions and mutual building societies for their better rates, fairer fees, responsible lending practices and outstanding member service," said Ms Petschler.
The Government's announcement backs up its statements that the Australian banking system is sound and will further improve confidence in our local banking institutions.
Abacus has also backed the Government's move to support term facilities for Australian ADIs, and called for close consultation with the mutual banking sector to ensure access.
"It’s critical that credit unions and building societies – now the main competitors to the big banks – are able to benefit from these measures to continue our vital competitive role."
To download the further information, click on the following links:
Credit Unions and Mutual Building Societies - Growing from Strength to Strength
Questions?
If you have any questions, please contact us. 
