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Jul 31, 2008

How Safe Are Your Singapore Bank Savings?

How Safe Are Your Bank Savings?

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.

Related Article:
1. Deposit Insurance Scheme

Jul 24, 2008

Singapore Bank Savings Vs Singapore Fixed Deposits

Singapore Bank Savings Vs Singapore Fixed Deposits

Singapore bank savings vs Singapore fixed deposits: Which is a better bank deposits deal to park your money and earn interest? Is a Singapore bank savings account a better option or is a Singapore fixed deposits account better?

Understanding Yourself
To answer this question, you need to understand what you want to do with all the spare cash in your wallet or purse. You need to decide what you want to do with the unspent money you receive as salary before you deploy your funds in a bank savings or fixed deposits account.

What is the purpose for this spare sum of money? Is it to

(1) Store it in a safe place
If you just need a place that is safer than under your pillow to store your spare cash, a bank savings account would be ideal because such a bank savings account can accept small sums of money for deposit, and can be withdrawn anytime for use. You still earn daily interest on the amount in your Singapore bank savings before it is withdrawn.

(2) Earn interest
If you want to earn higher Singapore bank savings interest on your Singapore deposits, choose the investment that can offer you the highest interest rates. Depending on the interest rates quoted by the various banks in Singapore, you can choose to park your savings in a Singapore bank savings account or a Singapore fixed deposits account as long as the interest rate appeals to your needs.

(3) Hold it for impending use
If you know the specific length of time when you need to take out your cash for other uses, choose the appropriate Singapore fixed deposits package that fits your requirement. If you do not know the actual date that you need to use this sum of money, than a Singapore bank savings account may be a better option.

Other considerations to think carefully about are listed below.

(1) Set up & maintenance costs
Account opening usually requires a minimum sum for Singapore fixed deposits or Singapore bank savings, although some savings accounts can often be opened with as little as S$1. There may be monthly service and other charges on sums that fall below a certain level for certain banks. Check out the details before you commit to a bank.

(2) Penalty charges
Singapore fixed deposits accounts often carry a penalty charge for premature withdrawal of your principal. This can potentially wipe out the extra interest earned in your Singapore fixed deposits, making the Singapore savings account a better choice as it does not impose any charges for early withdrawal.

(3) Administrative and other costs
You need to consider the time taken for queues, paper work, transport costs and other opportunity costs when you go down to a bank branch to open or close your savings and deposits account. Once opened, you can link your savings account to a current account, to ATM services and other Internet banking transactions to save you from more such hassles.

Recommendation
All things being equal, in practice, we would recommend that you credit your salary directly into a Singapore bank savings account immediately on payday. Any extra sources of income, dividends, payouts and money from elsewhere should be credited into a bank savings account. This way, you will effectively start to earn more interest and earn more money while you deliberate on your next move.

Conclusion
In conclusion, whether a Singapore bank savings account is better or a Singapore fixed deposits account is better depends on numerous factors, which we have already elucidated in this Singapore Bank Savings Vs Singapore Fixed Deposits article. All you need to do now is to look at your own circumstances and examine your own objectives. Only then can you decide for yourself if a Singapore bank savings, a Singapore fixed deposits or maybe both is / are suitable for your banking needs.

By Singapore Savings Account Rates blog


We recommend these posts in Sg Savings Account Rates blog:

1. Latest Singapore Un-fixed Deposits Rates
2. Best Bank Savings Interest Rates

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