How safe are your Singapore bank savings? Can You Lose All Your Money Kept In A Singapore Bank Savings Deposits Account?
With the recent closure of US banks Fannie Mae and Freddie Mac due to US home price declines and rising mortgage loan defaults, many US depositors faced prospects of losing money in their bank deposits savings accounts. Here in Singapore, can you lose all your money kept in a Singapore bank savings deposits? How safe are your bank savings?
Singapore Bank Savings Safe?
Can you lose all your bank savings? In theory, the answer is yes! You can lose all your bank savings and money kept in a Singapore bank savings deposits account if the bank that is keeping your savings account should ever go belly up AND the insurance agency that is supposed to protect your first $20000 also fails. This could arise from a nation wide collapse of entire financial system or if the Singapore dollar loses its value to zero or due to some other reasons, which we may not even envision as yet. In reality, this scenario is extremely unlikely.
Insurance For Singapore Bank Savings
Depositors who put money in bank savings are covered by insurance for the first $20000 in Singapore denominated dollars net of their liability. To illustrate: if you have 20K in Singapore fixed deposits and 20K in Singapore bank savings accounts with the same bank, you can only recover 20K of your money in the event of bank failure.
If you have $40000 in a bank savings accounts, but owe the bank $35000 for a car loan, you can only recover $5000 of your bank savings in the event of a total bank collapse.
Another problem with recovering your money in the bank savings after a bank has collapsed is the waiting time. Your bank savings compensation will not arrive any time soon until regulatory authorities sort out the mess with the affected bank and all other creditors. This may take weeks to months and maybe even years. In the meantime, you lose out on the potential interests earned and opportunity costs had you put that bank savings deposit in a more robust savings bank.
What if you split $40K between two different banks, like Bank A and Bank B? We believe the Deposits Insurance Act should cover your bank savings for $20K with EACH bank that gets into financial trouble. If two banks were to fail concurrently, we think that will be a sign of severe financial ill health.
Factors Affecting Safety of Bank Savings
We generally choose bank savings based on the interest rates offered by banks. But in considering the safety of your bank savings, other factors must come into the picture.
We need to consider other factors that will keep your bank savings safe. Is the bank well managed financially by capable leaders? Are the systems in the bank running efficiently? Are there adequate checks and balances? Is it well capitalized with enough assets to pay back customers their hard earned savings? Will it be able to survive all sorts of worldwide financial turmoil in today’s volatile markets? These are questions that users of bank savings like us must grapple with.
What Can You Do?
While the details on how to assess the robustness of banks is beyond our technical expertise, we feel that there are simple measures that bank savings users can adopt to minimize the risk of losing their bank savings. We have simplified the measures you can take to safeguard your bank savings into simple take home messages.
Simple Take Home Messages:
(on how NOT to lose your bank savings)
1. Save with banks that are covered under the Deposits Insurance Scheme (DIS) (http://www.sdic.org.sg/)
2. Save in Sing dollar savings accounts deposits, to qualify under the DIS.
3. Keep the maximum amount saved in each bank to about S$20K.
4. If you have more than S$20 K in bank savings, save the excess in another bank
5. Keep an eye on the financial health of your bank at all times.
Thank you for reading Singapore Savings Account Rates blog.
1. Deposit Insurance Scheme