This article was updated on 7 May 2018 after the Monetary Authority of Singapore announced changes to the amount insured on bank deposits.
Earlier this week, we were listening to the radio when we came across a very catchy song playing to the tune of “Hush Little Baby”. Yes, the same song that helps put babies to sleep.
This song however was targeted towards making adults feel more secured. It was an advertisement created by the Singapore Deposit Insurance Corporation (SDIC), with the purpose of reminding us that deposits in Singapore banks are safe and guaranteed.
For those of you who don’t already know, all bank deposits in Singapore are protected up to a maximum of $50,000 per bank. (Update: From 1 April 2019, this amount will be increased to $75,000.) The main objective for this protection is to prevent a bank run in Singapore.
A bank run refers to the situation where ordinary people like you and I decide that we are going to queue up at the bank and start withdrawing all our deposits, simply because we think that the money in our bank is no longer safe. This is extremely dangerous to any economy, because as long as enough people think the same way, even the most successful or safest bank will collapse.
The SDIC guarantees the money in our bank up to a maximum of $50,000 per bank per person. (Update: From 1 April 2019, this amount will be increased to $75,000.) But here are some other little known facts about it.
Read Also: How Safe Is The Money In Your Bank Account
# 1 SDIC covers per bank per person
All Deposit Insurance (DI) members (i.e. the banks) have their deposits insured up to a maximum of $50,000 per person. (Update: From 1 April 2019, this amount will be increased to $75,000.) That means even if you create multiple accounts within a single bank, the maximum deposit insurance you can get from the bank is still $50,000.
On the other hand, if you open accounts with different banks, you will get deposit coverage of up to $50,000 per bank. (Update: From 1 April 2019, this amount will be increased to $75,000.) So for those who believe in always preparing for the worst, splitting the amount of deposits you have across different banks allow you to enjoy maximum coverage of your savings (e.g. $250,000 across 5 different banks)
# 2 SDIC covers insurance as well
Unknown to many, SDIC also covers insurance policies as well. These include life insurances, endowment plans, individual annuities and even medical plans.
What SDIC does is to protect policy owners in the event that any insurance companies in Singapore fail and are unable to meet the obligations that they have to policy owners.
# 3 SDIC is a company
Contrary to what many people think, SDIC is not a government ministry or statutory board, but rather, a company.
However, we think it is worth noting that the SDIC “board of directors is accountable to the Minister in charge of the Monetary Authority of Singapore (MAS).”
It is also interesting to note that SDIC was established in 2006, which is before the 2008 financial crisis. That means the coverage provided by SDIC were already in place during the financial crisis, rather than for it to be an afterthought due to the crisis.
# 4 SDIC collects premiums from financial institutions
SDIC does not provide the deposit insurance coverage for free. Rather, in return for the more stable banking environment it creates via the assurance of the deposit insurance, SDIC collects premiums from banks within the DI schemes.
The premiums will be used to compensate insured depositors in the event of any losses arising from the failure of any of the banks or insurance companies.
Premium charged for each bank would be based on a couple of factors. One of this will be the amount of deposits a bank holds that requires insurance (remember, up to $50,000 per person). The other key factor will be the amount of “risk” SDIC believes the bank is undertaking.
Naturally, risker banks will need to pay higher premiums.
# 5 SDIC does invest as well
From its website, we understand that SDIC does invest the premiums it collects from its members. However, the investment it makes have to be within the Deposit Insurance and Policy Owners’ Protection Schemes Act. Otherwise, approval is required from the Minister in charge of MAS.
We think it is quite safe to assume that any investments made by SDIC are as safe as investment comes in Singapore.