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ADIs and the bank deposit guarantee explained (financial claims scheme)

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This article explains what an authorised deposit-taking institution (ADI) is, how they are regulated and how to find out if your bank is covered under the financial claims scheme, otherwise known as the “deposit guarantee”.

If you’ve got a bank account in Australia you may have heard of the term “authorised deposit-taking institution” or ADI. This is ASIC’s way of saying that the bank is allowed to take your savings and your money is guaranteed under the financial claims scheme, up to $250,000.

What exactly is an authorised deposit-taking institution (ADI)?

An ADI is granted to banks in Australia by the regulator, the Australian Prudential Regulation Authority (APRA). This allows institutions (namely banks, building societies and credit unions) to accept deposits from customers, under the Banking Act 1959.

To become an ADI, these institutions must meet a range of strict requirements, including minimum capital requirements. Key personnel must also fulfil certain education and experience criteria and prove they have systems and procedures in place to meet governance, compliance and audit standards.

According to APRA, ‘under section 66 of the Banking Act, it is an offence in Australia to use certain restricted words, such as authorised deposit-taking institution (ADI), bank, banker, or banking, in relation to a financial business, except where APRA has granted consent or exemption, or where a statutory exemption applies’.

The word “bank” is protected in Australia, and regulated by APRA.

This helps the public understand whether a financial institution is regulated, and avoid confusion between what is and isn’t an ADI.

A non-ADI financial institution is a financial institution that is not an ADI and cannot take retail deposits (e.g. from mum and dads looking for term deposits). These companies includes brokers, non-bank lenders and some Super funds.

Who regulates ADIs in Australia?

In Australia, APRA has the responsibility for the regulation of banks, insurance companies and most superannuation funds. APRA aims to maintain the safety and security of our financial institutions to ensure confidence in the banking system. 

Imagine if the community stopped trusting their bank to keep their money safe. They would start taking money out of the bank and things would quickly get problematic. It’s called a “run on the banks” and eventually, they go bust. Governments try to avoid this occurring at all costs.

APRA oversees the following institutions:

  • authorised deposit-taking institutions (such as banks, building societies and credit unions)
  • general insurers
  • life insurers
  • friendly societies
  • private health insurers
  • reinsurance companies, and
  • superannuation funds (other than self-managed funds)

Explained: Deposit Guarantee AKA Financial claims scheme

Under the financial claims scheme (FCS), deposits for each account holder (like you), up to $250,000 per ADI (and related subsidiaries), are protected by the Australian Government. Don’t forget the “subsidiaries” part. This means, if an ADI (like National Australia Bank) has multiple banks (like uBank) you might only be covered for ONE deposit of up to $250,000 — this is because the banks might have the same ADI under the surface. It pays to check.

For example, if you have $250,000 with Bank A and $250,000 with Bank B — but they share the same banking licence — you would only be covered for $250,000 and not the full $500,000.

In other words, this means that in the rare case that an ADI fails, your deposit is guaranteed under the FCS and administered by APRA.

According to APRA, the guarantee covers ‘deposit accounts, including transaction, savings and cheque accounts, term deposits and mortgage offset accounts (where the offset account is a separate deposit account)’.

The FCS covers those banking institutions incorporated in Australia and authorised by APRA that are:

  • Australian banks
  • foreign subsidiary banks
  • building societies
  • credit unions
  • certain other authorised deposit-taking institutions

Does my bank offer the deposit guarantee?

APRA publishes a list of all the ADIs they are currently regulating, which is helpful for you to refer back to if you’re banking with someone new or considering trying out a neobank.

The list includes financial institutions like Commonwealth Bank of Australia, Bendigo and Adelaide Bank Limited, Police Credit Union Limited and ING Bank (Australia) Limited.

Kate Campbell

Kate Campbell

Kate Campbell is the founder of How To Money (HTM), a personal finance platform for young Australians. Kate created HTM from a passion to help young Australians start talking about money, and share the resources she finds along her financial education journey. This led Kate to start her own journey to financial independence a few years back and she now works in the Australian financial services industry.

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