Since 1 April 2024, the insurance coverage on Singapore-dollar bank deposits increased to $100,000 per depositor – from $75,000 since April 2019 and $50,000 before that. This ensured that 91% of depositors were fully covered under the Deposit Insurance (DI) Scheme that is administered by the Singapore Deposit Insurance Corporation (SDIC).
The main objective of the SDIC protection is to prevent a bank run in Singapore. A bank run refers to the situation where ordinary people like you and I decide to 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.
Here are some other little known facts about SDIC.
# 1 SDIC Covers Per Bank Per Person
Deposits in the DI members are insured up to a maximum of $100,000 per person. That means even if you create multiple accounts within a single bank, the maximum deposit insurance coverage from the bank is still $100,000.
On the other hand, if you open accounts with different banks, you will get deposit coverage of up to $100,000 per bank. So, for those who believe in always preparing for the worst, splitting the amount of deposits you have across different banks allows you to enjoy maximum coverage on your savings (e.g. $500,000 across 5 different banks).
Read Also: Beginners’ Guide To Fixed Deposits In Singapore
#2 SDIC Covers Singapore-Dollar Deposits Held With A Full Bank Or Finance Company
Savings, fixed deposits, and current accounts in Singapore dollars held with a full bank or finance company are eligible for SDIC protection. These Financial Institutions (FIs) are licensed under and governed by the Banking Act to undertake banking activities such as deposit taking and lending.
Any foreign currency deposits, structured deposits, or investment products with these FIs will not be covered under the DI Scheme as the Scheme is meant to protect the core savings of small depositors, which are primarily denominated in Singapore dollars.
#3 SDIC Covers Insurance As Well
Unknown to many, SDIC also covers insurance policies as well. This is also referred to as the Policy Owners’ Protection (PPF) Scheme. Under the Scheme, the other types of insurances that are covered include life insurances, endowment plans, individual annuities and even medical plans.
What SDIC does is to protect policy owners in the event that insurance companies who are members of the PPF Scheme in Singapore fail and are unable to meet the obligations that they have to policy owners.
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#4 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 was already in place during the financial crisis, rather than for it to be an afterthought due to the crisis.
#5 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.
The premiums charged to each member bank are based on a percentage of the amount of insured deposit they hold (remember, up to $100,000 per person). The rates would differ for each member bank depending on the risk that they pose to the fund.
Naturally, risker banks will need to pay higher premiums.
#6 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. The SDIC primarily invests in MAS Bills, which are short-term tradable central bank securities that institutional investors could bid on through an auction.
Read Also: Guide To Using Robo Advisor Fixed Deposits
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