You may have met someone who says they don't trust banks and shoves their money under a mattress. You write them off and go on using your debit cards and checking accounts. Then some banking scandal happens and all of a sudden mattressing your money doesn't seem like such a bad idea.
Despite our fears, banks serve us pretty well for the most part. Our money is there when we need to pay rent. We can transfer our cash whenever we want. The system works well for day-to-day transactions, but that doesn't mean banks are entirely trustworthy. It's never been easy to trust a bank, but these days it seems impossible. So how do you pick one that's actually trustworthy? Here are a few options.
What Your Bank Should Offer, at the Very Least
At the very least, your bank should be an Authorised Deposit-taking Institution (ADI); the Australian Government has guaranteed deposits up to $250,000 in ADIs such as your bank, building society or credit union. This means that this money is guaranteed if anything happens to the ADI. You can find a list of ADIs here.
Make sure your bank offers online security and fraud protection, too. Your bank should use two-factor authentication, which makes you go through an extra step to verify your identity. They should also encrypt your transactions, meaning they code your info to prevent hackers from accessing it. Some banks offer 256-bit encryption but at the very least they should offer 128-bit encryption.
A good bank also has some kind of fraud protection. Here's NAB's policy, for example:
"The security of your money is just as important to us as it is to you. That’s why we’ve made this promise to you. Wherever you see the NAB Defence logo, you'll be protected against fraud.
- We'll check your accounts and monitor your high risk transactions.
- We’ll let you know about suspected fraud and investigate it for you.
- We’ll reimburse you 100% of any amount taken from your account if, despite our best defences, you’re a victim of fraud. That’s 100% peace of mind.
Of course, your responsibilities when operating your account still apply."
Most standard banks are pretty good about incorporating these three basic protections. These aren't bonus features, though -- they're a must for any bank account. We know that even with these protections in place, your bank can still screw you over, or be screwed over by a hacker or data breach.
Research the Bank's Reputation
A bit of research goes a long way and there are plenty of banking customers that have written up anecdotes about their good and bad experiences with various financial institutions.
Research firm AMR releases a Corporate Reputation Index report which gauges the reputation of big organisations, including banks. While the report isn't usually publicly available, it is widely reported on and banking trade publications will usually provide information on how Australian financial institutions rated against each other.
Sometimes news outlets and other organisations will rank banks and credit unions, too, according to customer satisfaction. Customer satisfaction doesn't guarantee a bank's trustworthiness, but it doesn't hurt to be informed.
Use a Credit Union Instead
Like any other company, banks have sales goals. Unlike a bank, a credit union is a not for-profit.
Credit unions don't have customers; they have members. We've told you about the differences between banks and credit unions before, but Dallys Bergl of the Inova federal credit union sums it up pretty well:
If you have an account with a credit union, you are a member and an owner... As a member/owner, you have the right to both vote and run for the Board of Directors. You get only one vote regardless of how much money you have at the credit union and all of our directors are volunteers and receive no compensation for their service. This process guarantees that your credit union is looking out for your financial interests and not that of a small group of stockholders.
Granted, Bergl is the president of a credit union, so his opinion might not be 100% objective. Generally, most credit union members only have awesome things to say about them. You can hardly say the same for bank customers.
Credit unions also typically have better interest rates and fewer fees. Many of them are member-only, though, and some of them might not have the same conveniences as banks.
Diversify, Don't Rely on One Account
Even with customer reviews, though, it's hard to predict where a bank is headed. All it takes is one bad executive to screw over a bunch of people. The truth is, while it's generally pretty safe to store your money in an Australian bank, there's no guarantee you won't run into a situation where bank staff takes advantage of customers.
Over at Quora, one Certified Financial Planner suggests a simple solution: diversify.
The problem is, there just aren't any truly, 100 % safe places to save wealth. So instead of putting all of it in the bank, try placing it around in stock brokerages, some in savings banks, some invested in real estate, and some working for you in your own business. That's probably the safest way to save money... and ensure that at least part of it is going to be there when you need it.
Obviously, this is prudent advice when it comes to investing, but this is still good advice even if you don't have $100,000 to diversify. You may feel unsafe storing all of your cash in a single bank, and in that case, you might diversify. For example, if you have a checking account at the Commonwealth Bank, you might keep a small savings cushion there, too, just for overdraft protection, but then keep the rest of your savings at, say, ANZ Bank. It might be overkill, but if you really don't trust banks, keep your money separated in a couple of banks you trust the most.
What to Do If Your Bank Screws You Over
Again, it's hard to guarantee your bank won't mess up in some way. The good news is, almost every financial services business have to belong to an external dispute resolution (EDR) scheme.
According to Australian Securities & Investments Commission's MoneySmart website:
"EDR schemes hear complaints for free and can be a simpler alternative to resolving disputes in court. The business must tell you which scheme it belongs to. Here are the three EDR schemes:
- Financial Ombudsman Service (FOS) - 1800 367 287 FOS handles complaints about banking, credit, loans and debt collection, life insurance, superannuation, financial planning, insurance broking, stockbroking, investments, managed funds, timeshares, general insurance, finance and mortgage broking. They cover complaints where the value of the claim is $500,000 or less. They do not deal with complaints about compulsory third party, private health, public liability and workers' compensation insurance.
- Credit and Investments Ombudsman (CIO) - 1800 138 422 CIO handles complaints about credit unions, building societies, non-bank lenders, mortgage and finance brokers, financial planners, lenders and debt collectors, credit licensees and credit representatives. They cover complaints where the value of the claim is $500,000 or less.
- Superannuation Complaints Tribunal (SCT) - 1300 884 114 or 03 8635 5580 The Tribunal handles complaints about providers of superannuation, retirement savings accounts and annuities. You must contact the trustee of your superannuation fund before you go to the SCT. The fund then has 90 days to respond to you.
People are becoming increasingly suspicious of big banks, and with this latest news, it's not hard to understand why. However, the good news is there are resources available designed to give consumers a little more power. If nothing else, this might be a good reminder to switch to a better bank -- or a credit union.