How safe is your money ?

When the great financial crisis roared through the financial world in 2008 a lot of people wondered how safe their nest eggs were in banks, credit unions and building societies.    Some harked back to Grandpa's stories about the great depression of 1929 - and how many state banks simply closed their doors.   At the time, politicians claimed that this was " temporary " - and that they would reopen shortly when things settled down.     But - they never did !   

There was the prospect of a run on the banks, with people withdrawing their cash and  hiding it under the mattress - and that would exacerbate the financial hole the country was in - so the Treasurer hastily gave a guarantee that money held in banks and similar financial institutions would be guaranteed by the Federal government - to a limit of a million dollars per depositor.

Now the Council of Financial Regulators has recommended that deposits be insured by a new scheme - and that the cap be reduced from one million to $ 250,000 per depositor, per institution.    Presumably, that means a person with a quarter million dollars in each of three banks would have the lot refunded if those institutions failed ?

The Federal Treasurer has stated that he is confident that 99% of depositors will be covered by this legislation - but a few cynical people might wonder - ,and require explanation - of just who that missing one percent is ?

Just exactly what is - and what is not covered in this legislation needs to be spelt out in clear language.   For instance, when a family trust has money deposited, does this guarantee apply to every member of that trust, irrespective of their ages ?      How does it apply to a solicitor's trust fund ?    Many such trust funds have balances far in excess of $ 250,000  and it is important to know if the limit applies to that single solicitor - or to each of his or her clients whose money is being held in trust.

As with all insurance schemes, it is important to closely examine the fine print and dot the " i's " and cross the " t's " - so that there is no misunderstanding further down the track if a financial calamity occurs and the legal agreement comes into play.

And many people would like to see just what definition of a " financial institution " applies in this instance !