The Deposit Insurance Scheme: What Is It And How It Protects You

In 2008, Washington Mutual, a bank with more than $300 billion in assets, declared bankruptcy. What happens to your hard earned savings if your bank fails?

The Deposit Insurance Scheme
According to Global Edge of Michigan State University, Singapore has a pretty strong banking sector. In the unlikely event that something like that does happen, the Deposit Insurance Scheme (DIS) will kick in, and there’s a good chance you will be compensated up to $50,000. However, there are some important caveats: your bank will need to be a Deposit Insurance Scheme member, and your deposits with your bank will need to be in eligible accounts.

We’ll cover the caveats first, then present 2 examples at the end of the article.

Is Your Bank A Deposit Insurance Scheme (DIS) Member?
Except those exempted by the Monetary Authority of Singapore, all full banks and finance companies in Singapore are members of the Deposit Insurance Scheme. This is a very broad list that covers all local banks and many foreign banks. For most Singaporeans, your favourite bank would be a DIS member.

The Singapore Deposit Insurance Corporation (SDIC) administers the Deposit Insurance Scheme. The official SDIC website lists all members of the Deposit Insurance Scheme here.

Is Your Account Eligible?
Not all accounts are eligible. Commonplace accounts like savings accounts, current accounts, and fixed deposits are insured. Other accounts such as credit card balances, structured deposits, and foreign currency accounts are not covered.

The official SDIC website lists the types of covered deposit accounts here.

What Happens If Your Bank Fails?
If your bank is a DIS member and your accounts are eligible, you will be able to receive compensation of up to $50,000 in the event of bank failure. The administrative body in charge, the Singapore Deposit Insurance Corporation, will step in and deliver the insurance payouts.

The SDIC will add up your funds in eligible accounts, and compensate you up to a maximum of $50,000. This will be done through a cheque, or through an account opened for you in another bank.

We provide some numerical examples at the end of this article.

What About Joint Accounts?
In the case of joint accounts, each joint account holder’s share is added to other deposits held in his or her name. The total amount of eligible deposits is insured up to $50,000. Each joint account holder is assumed to have an equal share in the joint account, unless there are records to show otherwise.

Examples
The following examples illustrate how much payout an account holder with deposits in a failed bank can receive.

1. Multiple accounts

Account Amount

Credit Card (Outstanding Balance) $20,000
Home Loan (Outstanding Balance) $400,000
Savings Account $20,000
Fixed Deposit $40,000
Structured Deposit $30,000
Foreign Currency Fixed Deposit (USD) USD $50,000
Total Balance in Eligible Accounts $60,000
Amount Insured $50,000
Amount Not Insured $10,000

In this example, an individual has a number of accounts in a failed bank. His credit card, home loan, structured deposit, and USD foreign currency fixed deposit accounts are not covered under the Deposit Insurance Scheme. Only his savings and fixed deposit accounts are eligible.

Therefore his total balance in eligible accounts is $20,000 + $40,000 = $60,000. Of this $60,000, $50,000 is insured under the Deposit Insurance Scheme, and $10,000 is not insured.

2. Joint Account
In this example, a husband and wife share a joint account with $60,000 balance. They also individually own separate accounts.

Account Amount
Husband Joint Savings Account $60,000
Share of Joint Savings Account $30,000
Individual Current Account $40,000
Total Balance $70,000
Amount Insured $50,000
Amount Not Insured $20,000

By default, each joint account holder holds an equal share of account balances. Thus the husband’s share of the family’s joint savings account is $60,000 ÷ 2 = $30,000. He also owns an individual current account with a balance of $40,000. His total balance at this bank is $30,000 + $40,000 = $70,000.

In the event of bank failure, the Deposit Insurance Scheme only insures $50,000. The remaining $20,000 is uninsured.

Account Amount
Wife Joint Savings Account $60,000
Share of Joint Savings Account $30,000
Personal Savings Account $10,000
Total Balance $40,000
Amount Insured $40,000
Amount Not Insured $0

Joint account holders are assumed to hold equal shares of account balances. Thus the wife’s share of the family’s joint savings account is $60,000 ÷ 2 = $30,000. She also owns an individual savings account with a balance of $10,000. In total, her balance at this bank is $30,000 + $10,000 = $40,000.

As the wife’s total balance of $40,000 is less than the $50,000 limit covered by the Deposit Insurance Scheme, her balance is fully covered.

For more information on this topic, please visit the Singapore Deposit Insurance Corporation website.

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