Like some of the online travel companies, neobanks could go bust.
What if tomorrow you find that your bank app is not responding, their website returns error 404, their phone disconnected or not answered… What would you do?
What Would You Do if Your Neobank Goes Bust?
LReadOnly on 05/03/2020 - 12:59
Comments
Correct. Although diversification is always recommended. Don't have just one bank account with all your money. As some big 4 banks have shown they can have IT outages too.
I’m looking at a real scenario. My friends bought tickets with Fly365 and now they don’t know what to do.
Same same huh…
They apply to their bank for a chargeback.
Buy tickets somewhere else.
Friends don't let friends drink and Fly365…
Did Fly365 go bust?
The post is about neobank going bust.
That's not a bank.
Then what would be your first step to recover your money? Call ADI ?
First thing would be to post on OzBargain.
Second thing is to add a MSPaint diagram.
And then, bikies. Which actually makes sense for this case
The ADI is required by the legalisation to have a system built into their online banking to handle this situation and it is required to be tested yearly (in their test environments). The system should block access to most features and only allow you to use it in read only mode except for a form used to provide details of another account elsewhere for the money to be sent to.
The Australian Government guarantees deposits up to $250,000 in Authorised Deposit-taking Institutions (ADIs)
Correct. But didn't the government change the legislation regarding the guarantee a few years ago? Something like they changed which department was responsible for paying out if needed and this effectively put a limit on the total amount that is underwritten. Therefore in the case of major banks going bust your guarantee up to $250k only works if the total claims are less than the maximum limit.
Very good question.
If they go bust and Judo openly admit their deposit rate is a "loss leader", you will supposedly get your money back from the Government.
Any interest owing will be lost.
Really is a matter of caveat emptor
What's 2.25% pm on 250k?
$531
less tax?
@wiipantz: There's no way of knowing the net amount without knowing your overall yearly earnings. If it's your only source of income, there's no tax until you make ~$18k off it
@Cyphar: Safe to Say I don't have 250k or anywhere near it. Nor do I earn enough to have such capacity. So at a rough figure of say %30 tax? What I'm getting at is what is the total actually worth in the end of the day? Prob a drop in the ocean if you have such resources, if you are on meager amounts such as the pleb I am it matters none. Better of slamming BTC into toilet paper stocks prob if Xinja goes belly up :)
@wiipantz: If you've worked and saved for 45 years then it's likely you will have savings of $250k (or more). It's not a drop in the ocean in those circumstances.
@brad1-8tsi: Maybe if I was a boomer, which I am afraid I not and don't have such luck also safe to say if I was Id be investing smarter than neo bank online cash rate for starters. Also I wouldn't be taking advice from a bargain site, once again safe to say no way have I got it and doesn't matter anyways.
@wiipantz: I'm not a boomer. I've just been frugal for the 40 years I've been working (left school in yr11) and am quite well off. My GF is 8yrs younger than me and she's doing OK too.
What I was pointing out was that on one hand you were saying $250k seemed unatainable to you but at the same time you felt others would think it a trivial amount.
Judo lend to business, so I bet you the rate they charge is 5% plus, that's a nice margin, not really a loss leader. In any case what are they sucking you in to subsequently pucrchase with the "loss leader"?
I have my money with Judo and have interest paid monthly to another account for precicely that reason ( in case they go bust ), I get my interest now and my capital from the gov. if they go belly up. I may have to waits 6 months for the gov. to come to the party but really that's the only risk I see.
What would you do?
I'd be checking and hoping it's the same bank I have my mortgage with!
you do realise your funds can be used as a bail in by the bank at any time, to prevent it from going insolvent, thus not triggering the government guarantee.
read the t&cs you will be shockedIf the bank isn't insolvent you won't need the government guarantee.
so if you have 50k in a bank, and they decide to use your 50k in return for near worthless shares, to stop themselves going insolvent, you are sweet? mst people think the garuntee will cover them but because they never went insolvent it cant be triggered.
It all comes down to the products that the neobanks are investing in.
I think the neobanks have a much lower risk model as they aren't taking on large mortgages. I believe they are just playing the short term money market.
As for the Big 4. They are the most at risk from housing revaluation.
…
Banks don't hold all of people's savings in their accounts. They loan them out, invest them, etc. They only hold a (small) percentage, that being the required capital reserve.
"Insolvent" means being unable to pay their debts as they're due. Your savings in a bank account are debts which the bank owes you, payable on demand.
So one of two things can happen:
You go to withdraw your money and the bank gives it to you, in which case there's no issue, or
You go to withdraw it and the bank can't give it to you, in which case they are - by the legal definition - insolvent and the government guarantee kicks in.
There's no option here that someone with an account with an ADI is out money under the $250,000 guaranteed limit.
@HighAndDry: Ok what ever you think
But go read the bail in laws, give Martin north a call
And it is capped at 20b, so useless for most banks
@Donaldhump: The bail in laws aren't relevant here - either you can get your money out or the bank is insolvent.
There's no option here that someone with an account with an ADI is out money under the $250,000 guaranteed limit.
That's not the way I read it.
unclesnake is correctthe maximum that can be appropriated is $20 billion
the government's $20 billion provision per ADI would not be sufficient to honour its deposit guarantee in the event of a failure of any of the Big Four banks and after that depositors are granted a priority claim on the assets of a failed ADI ahead of other unsecured creditors (once the Government has been reimbursed for any payouts and expenses arising from the FCS
tldr
When a meltdown happens your cash in the bank is not safe.@Bystander: Just regarding this point because your comment will take a while to unpack:
at the end of the 2019 financial year the major banks reported customer deposits between $300 billion and $600 billion each(privatevaults.com.au)
This includes all deposits at all ADIs, including all amounts over the $250,000 threshold.
Cursory look (and I mean a few seconds) says that most people will be more than protected:
https://www.savings.com.au/savings-accounts/average-savings-…
27% of Australians have more than $50,000 in savings
24% have between $10,000 and $50,000
49% have less than $10,000 in savingsThat's 73% of people have less than $50,000 in savings, total. Only 27% have more than that, and a far smaller fraction will have more than $250,000 - and these are the people who make up the vast bulk of the total deposits at banks.
This includes all deposits at all ADIs
Nope.
"the major banks reported customer deposits between $300 billion and $600 billion each"The takeaway here is that your money is safer in smaller ADI's that have less than $20b in deposits.
.
.73% of people have less than $50,000 in savings
We have no indication of how depositors would be repaid if a major bank fell over. Will they pro-rata how much is returned or give smaller depositors 100%? We don't know.
What we do know is that $20b/ADI is not sufficient.@Bystander: this may help anxiety levels …
Depositor Preference
While the existence of the FCS means depositors' funds are guaranteed up to the FCS cap, deposits above the cap in Australian ADIs also benefit from depositor preference. This means that Australian depositors have a priority claim on the assets of a failed ADI ahead of other unsecured creditors, after the Government has been reimbursed for any amounts paid under, and expenses incurred in relation to, the FCS. Section 13A of the Banking Act 1959 states that if an Australian ADI is wound up, all of its assets in Australia are first made available to APRA (on behalf of the Government) to recover amounts paid out to depositors under the FCS, and then any other debts owed to APRA in relation to expenses incurred in operating the FCS. Thereafter, the failed ADI's remaining assets in Australia must be used to repay any deposits in Australia above the FCS cap before they can be used to repay other unsecured creditors. To further support depositors' interests, ADIs are required to hold sufficient assets in Australia at all times to meet their Australian deposit liabilities.The last sentence is somewhat reassuring.
@IanC: Yes.
I did mention above that "depositors are granted a priority claim on the assets of a failed ADI ahead of other unsecured creditors (once the Government has been reimbursed for any payouts and expenses arising from the FCS".BUT
When a bank gets wound up the first people to get paid are
1. Staff, wages and leave entitlements and redundancy payments, etc
2. Govt reimbursed any FCS payments
3. Secured creditors
4. DepositorsThat's a fair way down the list.
.
.ADIs are required to hold sufficient assets in Australia at all times to meet their Australian deposit liabilities.
What are these assets? Because if assets includes mortgages over properties then I'm not taking any comfort from that at all.
In the event of a financial meltdown massively overinflated Australian real estate prices will be one of the first to tumble.
Yeah but if they gov failed to come to the party then that would signal their "guarantee" is worthless and would cause a run on all the banks. Bailing out a neo bank for a couple of billion ( max ) is peanuts compared to bailing out a big 4 if there were a sudden run.
Deafening silence from hypocritical free market advocates about the Government underwriting the retail banking sector.
And the big four are guaranteed to never go out of business - full stop.
The Commonwealth Bank laundered 700 million dollars for terrorists and drug dealers according to the banking royal commission.
Whilst the Australian Government guarantees deposits up to $250,000 in Authorised Deposit-taking Institutions (ADIs), how long do you have to wait for the compensation? Can you manage whilst waiting 1/3/6 months or longer without your money? The higher interest rate needs to reflect potentially less security than the major banks.
Added to your nightmare…. just don't do it to yourself
Wonder how long before Xinja falls over/
Giving 2.25% on deposits before they stopped taking deposits and have yet to start lending.
Given home loans will soon start with a 1 I just can't seem to see the profit.
And they lost money last year through cash burn.
Good luck to the true believers
The true believers Xinja should read todays Financial Review.
Companies p25
Unbelievable that people would loan money to this entity
Well there you go.
Gone as expected
It did take 9 months though.
Keep believing.
The Australian Government guarantees deposits up to $250,000 in Authorised Deposit-taking Institutions (ADIs) such as banks, building societies or credit unions. This means that if something happens to the bank, this money is guaranteed by the government to be paid back to you. Your deposit up to$250,000 is safe with all Australian ADIs, including online banks like UBank, ING and ME Bank, as well as smaller credit unions. All ADIs are regulated in the same way as the Big Four banks.