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.

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