The cap on the Australian Government's guarantee on bank deposits will fall to A$250,000 from the present level of $1 million the treasurer, Wayne Swan, announced yesterday. The lower cap will apply from February 1, 2012.In May, Treasury published a consultation paper that canvassed reducing the cap to between $100,000 and $250,000. The higher level was always likely and favoured by small deposit-taking entities, small banks and some foreign banks.The expiry date for the existing cap - rushed in at the height of the 2008 financial crisis - was next month. Credit unions, building societies and banks now have four months to prepare customers for the lower cap and adapt their own funding plans if necessary.According to Treasury and industry associations, the lower cap will still cover 99 per cent of deposit accounts covered by the Financial Claims Scheme.When financial regulators looked at deposit insurance in 2006 the cap proposed at the time was only $20,000.