Ask Paul: Is my non-bank mortgage offset protected?
Through reading and learning from Money over the years, I've minimised interest costs by having our mortgage with a non-bank at competitive rates and an offset account.
In these uncertain times we are in, I'm worried that a non-bank is not covered by the government's deposit protection scheme. So I've moved some of the offset account money (effectively our rainy day fund) into a day-to-day account with a mainstream bank.
Am I right to worry and take this approach, or is the risk of losing access to money in an offset account with a non-bank negligible?
The key here, Martin, is "ADI". Banks, non-banks, building societies, credit unions and friendly societies can all be covered by the words "authorised deposit taking institutions".
If your non-bank or other institution is an ADI, you are covered by the Australian government financial claims scheme, meaning a guarantee over deposits of up to $250,000.
Just go to the APRA or Reserve Bank website to get a list of ADIs. It won't apply to a pawnbroker, but its cover is extensive. As a consequence, people with large amounts of money have established accounts with many ADI institutions and put $250,000 in each.
My view is that if our accounts with our major banks have no value, then things are really crook.
However, if a tiny credit union, building society or non-bank lender with ADI status is offering us a better rate, then investing up to the $250,000 guarantee with them makes a lot of sense.
In effect, any institution with ADI status has a government guarantee over deposits up to the set limit.