Bank/customer relationship

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What is my relationship to a bank?

As you may have guessed from all the fine print, you have a contractual relationship with your bank. A contract is an agreement that is legally binding and therefore enforceable under the law. This contract will probably be entitled Conditions of Use, and may be given to you as a pamphlet when the account is opened. Why all the fine print? From the banks point of view, it is to ensure you understand the nature of the relationship. Unfortunately from the viewpoint of the consumer, its often too much to take in (even if it could be understood in full). As discussed below, the Code of Banking Practice requires the bank to provide all customers with the terms and conditions, in writing, which apply to their contract. The best advice is to read it and write down any questions that you have. You should not enter into any contract that you do not understand, and you are entitled to ask the bank for any clarification you require.

Of course there are many different types of bank accounts, and therefore different types of contractual relationships, but a written contract must be provided in each case.

Getting the terms of the contract

For any contract to be valid there must be an offer of the terms (by the bank) and an acceptance by the person entering into the contract (you). Both of you must acknowledge that the contract is legally binding.

You must receive the terms and conditions attached to the operation of the account when you open the account. This is required by the Code of Banking Practice, which sets out minimum standards for a bank's dealings with its customers. If you do not receive these you can complain.

The original Code of Banking Practice (1993) has been revised and a new version released in May 2004, which now applies to both individuals and small business customers. For customers of subscribing banks, it includes disclosure of:

• fees and charges and other terms and conditions
• changes to terms and conditions and fees and charges
• general information about banking services
• privacy and confidentiality
• complaints handling

The 2004 changes enable company directors acting as guarantors of their company to choose whether or not they wish to receive some of the guarantee disclosure information, and to choose whether they wish to sign the guarantee without waiting until the next day.

Who owns the money in the account?

You do! However, as part of your contractual relationship you agree to allow the bank to deal with your funds as it sees fit, as long as they repay the money according to the agreement you have made. For example, if you have a term deposit, you are only permitted to withdraw funds at intervals laid down in your agreement with the bank.

To be more specific, the relationship between you and the bank is that of a debtor and a creditor. Strictly speaking, and not many people realise this, when you put money in an account you are effectively loaning that money to the bank. You cannot, however, direct the way the bank uses your money.

How do I open an account?

There is now a points system that operates to ensure the identification of a person seeking to open a bank account. The bank will explain the system when you open the account. It's a good idea to ring them first so you don't waste your time and bring the necessary documentation. Do not consider opening an account in another name. It is illegal to open or operate an account in a name other than the one by which you are commonly known.

Types of accounts

Most accounts are "deposit accounts".

These include accounts such as term deposits, savings accounts, cheque accounts, cash management accounts. When you deposit money in your account you virtually loan the money to the bank on the terms and conditions of the account.

Electronic Funds Transfer

Accounts using plastic cards and Personal Identification Numbers (PIN) are also operated according to a contract (the Conditions of Use). See our information contained in a separate fact sheet that covers these transactions.

Tax file number

Although it is not mandatory to supply the bank with your tax file number, the interest received from your account will be taxed at a prohibitive rate if you do not do so. A tax file number is a unique number issued by the Australian Taxation Office that allows them to administer the tax system.