In today's fast-paced financial world, ensuring the safety of your hard-earned money is paramount.
But what happens when a bank fails?
There are better people than myself to explain how bank failures happen, but even the moderately financially literate instinctively understand that bank failure is… not great.
And there’s no such thing as a small bank failure, the fear is always that it will end up “cascading”.
“I’m afraid my bank will fail”, one can think to themselves, “if I withdraw my money in cash, at least I’ll have the cash.”
This idea is just a thought until they hear of people waiting outside banks because they’re afraid that the bank will literally run out of money during a financial crisis.
And that fear becomes reality if enough people believe and act on it; the panic is contagious.
What should I do when there is a bank failure?
The Singapore Deposit Insurance Corporation Limited (SDIC) reassures us not to panic, and to rest easy, knowing that our monies are protected by them.
But what exactly is SDIC? And why is a company insuring my money?
The simple answer is that SDIC was set up to protect bank deposits if a member bank or finance company fails. This falls under the Deposit Insurance (DI) Scheme.
The SDIC also has another scheme to protect insurance policyholders should the providers fail, called the Policy Owners’ Protection (PPF) Scheme.
Deposit Insurance Scheme
Although this type of thing hasn’t happened in Singapore before, SDIC is here to protect us should it happen, through its Deposit Insurance (DI) Scheme.
If your Singapore dollar-denominated deposits are placed with a DI Scheme member, they will most likely be covered.
So what’s actually covered?
SDIC says that deposits held in a savings account, fixed deposit account, current account, and monies placed under the Supplementary Retirement Scheme, amongst others, are covered by the DI Scheme.
Should the bank or finance company fail, all your insured deposits with that institution will be added together and insured up to S$100,000.
SDIC will compensate affected depositors via PayNow (using NRIC/FIN/UEN number) or cashier’s orders sent to your registered address with the failed bank.
You won’t need to file anything when your bank fails.
You also need not fill out any application form or pay any premium as coverage is automatic.
SDIC encourages you to register for PayNow using your NRIC/FIN/UEN number so that you can receive any compensation payment promptly.
Policy Owners’ Protection Scheme
The SDIC similarly protects insurance policy holders; the Policy Owners’ Protection (PPF) Scheme was set up so that policy owners would be protected should a life or general insurer fail.
Some types of insurance schemes covered by PPF scheme include term life, whole life, annuities, and endowment policies, to name a few.
The PPF Scheme also covers general insurance policies such as motor or travel insurance policies.
The coverage is subject to limits. If you’d like to find out more about your protection under the PPF Scheme, visit here.
Singapore Deposit Insurance Corporation Limited (SDIC) administers the Deposit Insurance (DI) Scheme and Policy Owners’ Protection (PPF) Scheme in Singapore. SDIC is a company limited by guarantee under the Companies Act.
Extra layers
Ultimately, the goal of the SDIC’s schemes is to provide an extra layer of reassurance.
It allows a certain peace of mind that means that you don’t have to head straight to the bank or insurance company to withdraw money or surrender your policies, and allows people some time to determine what their next step will be, knowing that they won’t walk away with nothing.
So if the unfortunate day should come where we see something that we have never seen before in Singapore, if a SDIC scheme member bank, finance company, or insurance institution fails, rest assured that your money will remain safe.
This article is sponsored by SDIC.
Top image by Canva
