Oct 11, 2008

How To Protect Your Money in Singapore Banks

I have never really paid attention to the Singapore Deposit Insurance Scheme. Until recently, it seemed irrelevant to me as a bank customer. But now the world is bidding goodbye to the good old days when banks were strong, solid institutions that couldn't possibly fail. So today I am surfing the Internet checking out what the SDIS is all about.

The scheme is for the benefit of individuals and charities. If you, as an individual, deposit your money with a bank or finance company that is a scheme member, your money will be insured for up to $20,000. This means that even if your bank fails, the Singapore Deposit Insurance Corporation will compensate you for up to $20,000.

The SDIC is able to do so (or supposed to be able to do so) because it has been regularly collecting insurance premiums over the past few years, from all its scheme members. Let's briefly discuss a few technical details.

Firstly, the coverage is net of liabilities. This means that if you have $10,000 in your DBS savings account, but you owe DBS $7,000 for your credit cards, then the SDIC protects you for only $3,000. That's because on a net basis, DBS owes you $3,000.

Secondly, the coverage is only for Singapore Dollar deposits. So if you have a USD account or a fixed deposit in Australian dollars, those savings won't be covered.

Thirdly, the SDIS basically covers savings accounts, current accounts and fixed deposits. Money in the form of funkier products, such as structured deposits, will not be covered. Neither will any unit trust investments.

Fourth, who are the scheme members? There are 34 institutions in the list, including the most well-known retail institutions in Singapore such as DBS; UOB; OCBC; Stanchart and HSBC.

Now, let's discuss a few simple ideas on how to maximise your SDIS protection. Basically the trick is to get the protection where you can; to max out the $20,000 protection where you have it; and to reduce any excess you have, over that limit. A few examples to illustrate.

Suppose Mr Tan keeps all his life savings (SGD 80,000) in DBS. Since $20,000 is the protection limit per eligible account, $60,000 of Mr Tan's money is left unprotected. However, Mr Tan can open three new accounts (say, with UOB, OCBC and Stanchart) and place $20,000 in each of his four bank accounts. Now, the SDIS will fully cover Mr Tan's $80,000.

In our next example, suppose John has $20,000 in an OCBC savings account. He also has an outstanding OCBC mortgage of about $200,000, and he pays the monthly instalments using his CPF. Note that John's $20,000 doesn't enjoy SDIS protection at all (because on a net basis, he owes OCBC about $180,000). To get such protection, Mr Lim can transfer his $20,000 to another bank.

In our third example, suppose Lily has $30,000 in her UOB account and $10,000 in her Stanchart account. Although all her Stanchart money is covered, one third of her UOB money is not (because it's over the $20,000 limit). However, by withdrawing $10,000 from her UOB account and placing it on fixed deposit with Stanchart, Lily ends up with about $20,000 in each bank. Therefore her money is now fully covered by the SDIS.

If you have quite a lot of cash, it may be difficult to find enough banks to place all your cash, such that you have no more than $20,000 with each bank. There may also be some banks (among the scheme members) that you don't want to open an account with (either because you don't trust them, or because they don't provide the range of retail services you need / expect).

However, in such a case, you can still increase your SDIS protection by spreading some of your cash, among the banks you do trust (relatively speaking) and don't mind banking with. Better than nothing.

Next week, I will be going around town opening a few extra bank accounts and placing some SGD fixed deposits here and there. Just up to $20,000 per new account.

[If you found this article useful and informative, do tell your friends and relatives about it.]

31 comments:

Charlez said...

Nice post !!!

Personally i have tried that but management of the accounts could be a little troublesome at times.

Xuhua said...
This comment has been removed by the author.
Xuhua said...

In US, the FDIC (Federal Deposit Insurance Corp) insures deposits up to US$100,000 per bank account per social security (i.e per person).

If there are 2 persons opening a particular bank account, US$200k is insured.

Hence, S$20k per bank in Sgp may be too little (or prudent) a coverage. A car itself already costs about S$50-60k?

Fighting fit said...

another thing you can do is open accounts in the name of your children and put in $20k. Or if they have one, top it up to 20k.

David said...

If I remember correctly, the reason they give why only $20K covered is that it covers fully the amount for 80% of client accounts. Does that mean 80% of client accounts have only $20K and less?
If so, then I think Singaporeans are not as well off as I thought. Or I find it hard to believe as we are a small country with a small but totally urban population and yet majority are not well off.

Mr Wang Says So said...
This comment has been removed by the author.
Space said...

The US already increased it to USD250k per person, USD500k for joint account. Don't understand why MAS can't even raise it to at least SGD100k. Will simply many things.

m said...

Can someone advise me... DBS LTD is in the member list but POSB is not. I know POSB is part of DBS group...

But if their name is not included in the list, is it for sure that savings in POSB will be compensated too?

Also, will our money in both DBS & POSB be compensated or only one of the bank?

Alan Wong said...

So I must have been hookwinked all this years into believing that my savings in my bank accounts are fully protected, that's right - 100% of it.

Wasn't it the govt or our MAS that gave us this assurance ?

I thought one of the conditions for giving the bank licences was that 100% of the depositor's funds are fully protected.

Now can someone in the Govermnet please tell us that this is only a fallacy!

David said...

$20K is per person per bank, and minus your liabilities, regardless of number of accounts. POSB=DBS=one bank.

Jon said...

How much financial clout does SDIC has?

Take a look at the financial statements:
http://www.sdic.org.sg/documents/finl%20statements%20SDIC%20&%20Fund%2031Mar08.pdf

A guarantee is only as good as its guarantor.

caesium5 said...

Mr Wang, what about this scenario:

I've got $20K in a bank under my name.

Husband got $20K in same bank under his name.

We've got another $20K joint account - me and husband.

Then how? do WE get all the $60K back if bank goes down or only $40K

nanie said...

Thanks Mr Wang for the very clear explanation and examples. The examples were most useful! If you don't mind, I'm going to cut and paste your post in my blog for my friends to read (and also for my own archival purpose). I'll definitely quote you as the source of the information.

bsd said...

Oz govt guarantees all bank deposits unlimited.. i am shifting $3 million dollars over to Oz banks tmr

The Social Reformer said...

Chess Strategy

Mr Wang Says So said...

David:

Well, it's not that surprising.

Suppose the average Tan family has Dad as sole breadwinner; Mum as homemaker; and two non-working children, say, in poly or junior college.

We would expect all four family members to have bank accounts, but it really wouldn't be that surprising if only Dad's account had > 20K and the rest had <20K.

So three out of four accounts in this family are already below 20K (and this wouldn't necessarily reflect that they're in bad financial shape).

Mr Wang Says So said...

Space:

We'll see what happens .... Note: MAS doesn't guarantee the deposits.

SDIC is funded by its members' own premimum contributions, something like how sailors in the ancient times pooled money together to insure each other's lives, for the sake of their family members.

Mr Wang Says So said...

Alan:

I thiunk you hoodwinked yourself, haha.

Mr Wang Says So said...

Jon:

They have about $28 million, which is not much. Better than nothing, but not that much.

Note also that a lot of their cash is held in the form of financial instruments, eg bonds. If SDIC had to liquidate the bonds in a hurry, who knows what price they might actually get for them.

Mr Wang Says So said...

Caesium5:

Joint account sum is treated as equally split between the account holders. Each account holder remains covered for up to $20,000 per person.

hojiber said...

Mr Wang, DBS Hong Kong is first bank to redeem Lehman related minbonds. All Hong Kong customers can get full refund.

News here -> http://www.chinadaily.com.cn/hkedition/2008-10/10/content_7092404.htm

How come SG did not cover such an important piece of news? Why DBS, which is a Singapore bank majority owned by Temasek, not offering such benefits to Singaporeans first?!

porcorosso said...

hello - some thoughts on our very present troubles - http://porcorosso.wordpress.com/

Space said...

Mr Wang, it's about time the SIN govt steps in to do something to the equivalent of FDIC...

The Finance Minister shld step in and do something concrete for the ppl after getting paid millions of dollars. Not to just step out and say that we're going to ride this recession/depression together.

nhyone said...

Mr Wang, if you trust your wife ;), you can just open one joint a/c per bank and you can protect $40k. (Be sure not to have your own accounts there, though.)

This is one of the examples given on the SDIC website.

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nhyone said...

hojiber, I feel DBS HK decided to redeem the 70 investors because the sums were negligible (to them).

I don't think it's out of kindness or sympathy. :)

je said...

Hi Mr Wang,

For investments that are not insured and are offered by the bank itself, e.g. investment-linked plans, structured deposits etc., do you know what are the various responsibilities of a bank towards the investors in the event of a collapse?

If I remember correctly (or wrongly, heh), for bonds, banks are obliged to liquidate assets to pay investors in full, whereas for investors of other types of investments, only partial payments are made. Not too sure up to what % though.

Apart from banks, are our insurance policies insured as well?

Hope you can shed some light on this. And thanks for the useful info!

Regards..

Mr Wang Says So said...

Je:

Well, it depends on the product.

For structured deposits, essentially you'll just queue up with all other unsecured creditors (including the renovation contractor, the stationery supplier, PUB for electricity bills etc) and you'll get a pro rata (proportionate) share of whatever remains of the bank's assets.

For investment-linked policies, usually it's the underlying insurer you need to worry about, not the bank which helped distribute the product. The bank is merely the distributor, meaning that it collected a small fee for helping AIA / Prudential etc sell the product. If the bank then goes bust, your product is unaffected. (It's the insurer going bust that you should worry about).

T__T said...

now that the govt (hah!) has guaranteed alll savings and deposit, there is no longer any need for the 20k per account practice. Instead wait for the bank to woo you with higher interest.

nhyone said...

On the contrary. Banks no longer have incentive to pay good interests.

Deepali Parkhi said...

As long as you stay away from DBS Bank you should be fine, hahaha....