What does hike in insurance coverage on bank deposits to $100,000 mean for you?

From Apr 1, the insurance coverage on your Singapore-dollar-denominated deposits with retail banks and finance companies will be raised to S$100,000, from S$75,000 previously, as announced last September.

This means that in the event a bank or finance company fails, your money is protected up to an aggregate limit of S$100,000 per depositor.

ST Explains looks into how safe your money really is.

1. What is the Deposit Insurance Scheme?

You would have heard this before from your banker: “Your money with the bank is guaranteed up to S$75,000.”

From Apr 1, this limit goes up to S$100,000.

This essentially is the Deposit Insurance (DI) Scheme.

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All retail banks with a full banking licence and finance companies are members of this scheme.

It protects deposits up to a maximum of S$100,000 per depositor in the event a member bank or finance company fails.

The compensation to depositors will come from the DI Fund, which is administered by the Singapore Deposit Insurance Corporation (SDIC).

The fund is built up from premiums that DI Scheme members pay annually and can be invested only in safe and liquid assets, such as securities issued by the government or by the Monetary Authority of Singapore (MAS), according to SDIC’s website.

SDIC said the premiums are charged to member institutions as a percentage of the amount of insured deposits they hold.

The premium rates are different for each member and depends on the risk they pose to the fund.

According to MAS, annual premiums are between 2.5 basis points (0.025 per cent) and 8 basis points (0.08 per cent) of the insured deposit base.

MAS has said there will be no revision to these rates and DI Scheme members can expect absolute premiums to rise along with the increase in their insured deposit base.

It has also said the DI Fund is on track to achieve its target fund size of 30 basis points (0.3 per cent) of total insured deposits by 2028.

2. Why do we need to raise the deposit insurance limit to S$100,000?

The amount of Singapore-dollar denominated deposits held with DI Scheme members has grown since the coverage limit was last raised in April 2019 to S$75,000.

With this growth in deposits, only 89 per cent of depositors will be fully protected against any failure of a DI Scheme member, a drop of two percentage points.

The increase in the deposit insurance limit will thus restore the percentage of fully insured depositors to 91 per cent, in line with international norms.

3. Who and what are covered?

Individuals and other non-bank depositors, including sole proprietorships, associations and societies, are covered.

Singapore dollar deposits that are eligible for protection under the DI Scheme include savings and current accounts, fixed deposits and monies placed under the Supplementary Retirement Scheme (SRS).

All these deposits are aggregated and insured up to S$100,000 per depositor.

For example, an individual has S$150,000 in aggregate (savings, fixed deposit and SRS) with Bank A, which failed.

The individual will get back $100,000 and may lose the remaining $50,000 which is not insured if the failed bank has insufficient assets remaining. (see amendment note)

As for joint accounts, each joint account holder’s share of the joint account is combined with other deposits (savings, fixed deposit and SRS) held in his or her own name. The aggregate amount of deposits is insured up to S$100,000.

Each joint account holder is assumed to have an equal share in the joint account.

Separately, any monies placed under the Central Provident Fund (CPF) Investment Scheme and the CPF Retirement Sum Scheme are aggregated and insured up to a maximum of S$100,000.

Investments under the CPF Investment Scheme are not insured, the deposit insurance applies only to any cash balances sitting in the CPF Investment Account.

For sole proprietors, the deposits in their personal accounts and business accounts are combined and insured up to S$100,000.

For instance, a sole proprietor has S$50,000 in his savings account and S$80,000 in a business account. His combined total is S$130,000. He will get back S$100,000 and lose S$30,000.

4. What is not covered?

The DI Scheme does not cover foreign currency deposits, structured deposits and investment products such as unit trusts and shares.

SDIC said on its website that the main objective of deposit insurance is to protect small depositors.

Many of these small depositors do not have foreign currency or structured deposits, SDIC added.

Moreover, these products have an investment feature and the investor must therefore be prepared to accept higher risks for higher returns.

5. Are the digital banks included under the Deposit Insurance Scheme?

Trust Bank, GXS Bank and MariBank are all DI Scheme members. This means their customers will also be protected under the enhanced DI limit, up to S$100,000 come Apr 1.

Alongside this increase, MariBank will be raising the maximum deposit of its Mari Savings Account to S$100,000.

It will also extend the offer to raise the interest rates on its savings account to 2.88 per cent for another three months till Jun 30.

The Straits Times understands that GXS Bank is not raising the maximum deposit for the GXS Savings Account, which will remain at S$75,000 for now.

Trust Bank’s deposit limit has already exceeded S$100,000. The limit is currently set at S$500,000, one of the highest in the market, the digital bank said.

The bank added that customers can earn up to 3 per cent per annum on deposit balances up to S$500,000.

This includes a base rate of 1.5 per cent, a balance bonus rate of 0.5 per cent, and a special bonus rate of between 0.5 per cent and 1 per cent. THE STRAITS TIMES

Amendment note: In an earlier version of the story, we said an individual will get back $100,000 and lose the remaining $50,000 which is not insured under the new limit. The Monetary Authority of Singapore has pointed out that “balances above $100,000 could possibly be recovered from the failed bank’s remaining assets, so the depositor may not automatically lose the entire amount of the uninsured balance”.