Cash in the bank

So you’ve cashed up ready for the crash so you can then buy up assets at cheap prices?  One thing many (most) people don’t realise is that you as a bank depositor are an unsecured creditor of the bank.  In Australia you have a ‘safety net’ in that the Government guarantees your deposit up to $250,000.  In New Zealand you don’t have this and now have bail-in legislation (ala Cyprus).  Aussies can’t relax as bail–in adoption is on the G20 agenda for countries around the world (as a few already have).  

The fine print of our bank deposit guarantee scheme also limits the Government’s commitment to $20b per bank, so the bigger the bank (where deposits easily exceed this), the more at risk you are of getting that $250K back (and of course anything above that is gone).  There is then fractional reserve banking which sees more loans issued than deposits held.  Indeed in the first half of this year that gap grew by $34b to $497b of loans exceeding deposits, largely driven by the latest property boom.  

Whilst we dodged the bullet with our banks in the GFC, they have borrowed more of late from overseas which sees us far more exposed to an international banking collapse.  $250,000 buys you about 5.5kg of gold or 355kg of silver right now.  No matter what happens to financial markets you will still hold 5.5kg of gold or 355kg of silver, and over the medium to long term that will return far better than the measly interest the bank is paying you for the privilege of owning ‘your money’…