Explainer: How the enhanced deposit insurance scheme protects your money

SINGAPORE — Deposit account holders will get more protection should a bank or finance company fails.

Starting from April 1, deposit insurance coverage will go up from S$50,000 to S$75,000, the Singapore Deposit Insurance Corporation (SDIC) announced on Thursday (March 28).

SDIC administers the Deposit Insurance Scheme that is set out by law. It offers insurance coverage for Singapore-dollar accounts, which may be savings, current or deposit accounts with banks or finance companies.

With the latest increase, at least nine out of 10 depositors are expected to have their savings fully protected, the company said.

WHY DOES IT MATTER?

The scheme aims to safeguard interests of small consumers in the event that their bank or financial institution fails.

All full banks and finance companies in Singapore are required by law to be members of the scheme, unless exempted by the Monetary Authority of Singapore (MAS).

The protection is provided to individual depositors, as well as non-bank depositors such as sole proprietorships, companies, associations and societies.

WHY THE INCREASE?

The S$50,000 maximum coverage was set in 2011 but since then, the percentage of fully insured depositors has dropped to 87 per cent due to rising incomes and higher savings.

“Restoring the ratio to above 90 per cent will keep Singapore’s deposit insurance coverage in line with international norms,” SDIC said.

MAS reviews the coverage every five years to check if needs are being met.

HOW DID THE SCHEME COME ABOUT?

The Deposit Insurance Scheme was launched as part of the Deposit Insurance Act, which came into force in October 2005.

The coverage limit was S$20,000 then.

The Act was later repealed and replaced with the Deposit Insurance and Policy Owners’ Protection Schemes Act 2011. This took effect from May 2011.

Under this Act, the Deposit Insurance Scheme was enhanced to extend its coverage to S$50,000.

The scheme covers Singapore dollar deposits or monies in:

• Savings, current and fixed deposit accounts

• Trust and client accounts

• CPF Investment Scheme accounts

• CPF Retirement Sum Scheme accounts

• Supplementary Retirement Scheme accounts

• Wadiah accounts (with Islamic banks/financial institution)

• Murabaha accounts (with Islamic banks/financial institution)

Foreign-currency deposits, structured deposits and investment products such as unit trusts, shares and other securities are not covered.

Depositors are covered automatically and there is no need to submit any application form or pay any premium.

In the event the bank or finance company fails, depositors do not need to do anything, but to “keep a lookout” for announcements through mass media on how compensation will be made, SDIC said.

HOW ARE DEPOSITORS PROTECTED?

With the new S$75,000 limit, more than 90 per cent of insured depositors are covered in full, SDIC’s chief executive officer Denise Wong said.

“The latest enhancements are necessary to keep the scheme relevant to the changing needs of consumers and to provide adequate protection to depositors,” she added.

Come April 1, insured deposits will be protected up to an aggregated or combined limit of S$75,000 for every depositor per financial institution, regardless of how many accounts one has with the same institution.

• Deposits in savings and current accounts are aggregated and insured for up to S$75,000.

• Trust and client accounts are insured on a per-account basis up to S$75,000 without aggregation. Monies and deposits under the CPF Investment Scheme and the CPF Retirement Sum Scheme are aggregated and separately insured up to S$75,000.

• For sole proprietors, personal eligible accounts will be aggregated with the eligible business accounts of the sole proprietorship and insured up to a total amount of S$75,000.

WHAT DOES SDIC DO?

SDIC was first set up in 2006 as a company limited by guarantee under the Companies Act to administer the Deposit Insurance Scheme.

Its board is accountable to the Minister-in-charge of the MAS. After the Deposit Insurance and Policy Owners’ Protection Schemes Act took effect in 2011, SDIC had to administer both schemes.

Its main roles are to collect levies from members of both schemes, make payment of compensation to depositors, policy owners or relevant beneficiaries and third parties, and to educate the public on both schemes.

The Policy Owners' Protection Scheme covers life and general insurance policies in the event of the failure of a life or general insurer.

A key revision in the latest announcement by SDIC is that motor and property insurance policies bought by an individual will be covered even if the car or property is used for commercial purposes.