The Financial Claims Scheme (FCS) is an Australian Government scheme that provides protection to deposits in banks, building societies and credit unions in the unlikely event that one of these financial institutions fails. Under the FCS, a ‘failed’ institution is one that is insolvent – that is, the institution can no longer pay its debts when they become due and payable.
The FCS can only come into effect if it is activated by the Australian Government when an institution fails. Once activated, the FCS will be administered by the Australian Prudential Regulation Authority (APRA).
The objectives of the FCS are to:
- protect depositors of banks, building societies and credit unions incorporated in Australia, and policyholders of general insurers from potential loss due to the failure of these institutions
- provide depositors with prompt access to their deposits that are protected under the FCS
- support the stability of the Australian financial system.
Under the FCS, deposits are protected up to a limit of $250,000 for each account holder at each bank, building society and credit union that is incorporated in Australia and authorised by APRA. These are collectively refer to as authorised deposit-taking institutions, or ADIs.
Each individual is considered an account holder, so in the case of joint accounts, the protection is up to $250,000 per individual.
For example, if John and Mary have a $500,000 term deposit with an ADI that fails, they will each be protected for the full $250,000. If John also has $100,000 in a savings account with another ADI, that would be covered as well. But if Mary has $100,000 savings with another banking business that is operating under the same banking licence (e.g. the joint term deposit is with Westpac and her $100,000 is with St George), her $100,000 would not be protected because she has already reached the $250,000 limit with the joint term deposit.
It is important to note that deposits with platforms/wrap accounts (IDPS or super wraps) are generally not covered under the FCS.
This article is the opinion of the writer and does not consider the circumstances of any individual. This document has been prepared by Peter Keogh (Authorised Representative No. 253538 of Paragem Pty Ltd AFSL 297276) and is intended to be a general overview of the subject matter. The document is not intended to be comprehensive and should not be relied upon as such. We have not taken into account the individual objectives or circumstances of any person. Legal, financial and other professional advice should be sought prior to applying the information contained in this document. No responsibility is accepted by Peter Keogh, Paragem or its officers.