Will the Government's deposit guarantee be extended, and will this affect you?

In October 2008, at the height of the global financial crisis, the Australian Government introduced a deposit guarantee as part of its Financial Claims Scheme - as a way of protecting and reassuring depositors.
 
Acting as somewhat of a ‘third party insurance policy’, this deposit guarantee was implemented for deposits up to $1 million to encourage consumers to keep the economy buoyant in challenging financial times.
 
On its website, financial advisory firm Canstar Cannex points out that the deposit guarantee has given consumers greater confidence – stating that, ‘where depositors may have previously been wary of investing with a particular institution, they can now invest with greater confidence if that institution is covered under the Government deposit guarantee.⁵

However, now that the financial crisis has receded, the Council of Financial Regulators - made up of the Reserve Bank, Treasury and prudential regulators – has advised the Government to lower the limit. Currently, the Government is still in the process of determining what to do with the guarantee – with an announcement expected before October of this year.

Within the financial sector, there has been a mixed response to this suggestion.
 
Abacus - the industry body for Australian mutuals - is calling for a continuation of the existing cap, believing that it creates a more even playing field, and lessens the dominance of Australia’s four big banks.⁶

Louise Petschler, Abacus’ CEO, is quoted on their website as saying, ‘We believe the current cap is appropriate, pro-competitive and poses no risk to taxpayers so it should be left in place’.⁶

However, regardless of whether the deposit guarantee is dropped – or extended for 12 more months as has been speculated – it’s ‘business as usual’ as far as Teachers Credit Union’s customers and members are concerned. Teachers Credit Union is as safe and secure as it has ever been.

In fact, we’re pleased to report that a healthy profit is forecast for Teachers Credit Union for 2010/11, reflecting the prudent management and solid commercial acumen of our team. As always, any profits made by Teachers Credit Union will be reinvested to provide competitive and innovative products and services for our members.

According to Treasury, even at a new, reduced level the deposit guarantee would still cover 97 to 99% of Australian deposit accounts.⁷




5. http://www.canstar.com.au/government-deposit-guarantee/. 6. http://www.abacus.org.au/media-a-resources/media-release-alerts/747-review-of-financial-claims-scheme. 7. http://www.brisbanetimes.com.au/business/call-to-extend-deposit-guarantee-20110605-1fnbr.html.