Tuesday, March 21, 2023

Is My Money In The Bank Safe?

The recent debacle on banks, their liquidity issues and bank-runs had prompted this question that was seldom asked before among my circles: is my money in the bank safe?

Short answer: it depends.


Before going on a panic spree upon my answer, we shall take a deeper look at why I gave my reply as such.


Enter SDIC


If you have heard of the Federal Deposit Insurance Corporation, or FDIC, on the news where it protected depositors of Silicon Valley Bank a while ago, we have an equivalent here in Singapore, called Singapore Deposit Insurance Corporation (SDIC). I had covered SDIC in my eBook on the chapter on cash1, but to provide a summary, the SDIC insures Singapore dollar (SGD) denominated deposits placed with a Deposit Insurance (DI) Scheme member in any of its branches in Singapore, up to SGD 75,000 (depending on type of account) per DI Scheme member. Foreign currency denominated accounts, structured deposits and investment products are not insured under SDIC.


You may check out who are the DI Scheme members, the calculation of the SGD 75,000 compensation, and the types of accounts insured in the SDIC website (provided under Reference below).


Diversifying Deposits?


If you had delved into the SDIC website on the compensation scheme, the first concern that may come into your mind would be: given the SGD 75,000 limit, should I diversify my deposits across different banks/finance companies?


As a proponent of diversification, I would say yes. Personally, I have accounts in two separate banks: one bank as my main salary crediting/bill paying account(s), and another just to store my emergency cash. However, we need to consider between balancing the risk(s) of having a financial institution defaulting, and the inconveniences of having one’s monies all around the place (long live FAST?), and other factors in-between.


In our local context, a bank/finance company collapsing is a very rare occurrence (the last one I heard of was Barings in the 1990s, and its collapse was due to a rogue futures trader), so that means the probability (and risk) of happening is very low. I would dare not say never, but the low risk of it happening does not warrant me to fret much over the issue, which in fact, there are other bigger things with higher risks to be concerned of (e.g., share prices of individual companies diving).


Stay calm, stay vested.




SDIC Website –  https://www.sdic.org.sg


1 – The Bedokian Portfolio (2nd Ed), p54-55


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