• Calculation of Compensation Under the DI Scheme Explained in Layman’s Terms

    You may have come across this disclaimer – “Singapore dollar deposits of non-bank depositors and are insured by the Singapore Deposit Insurance Corporation, for up to S$50,000 in aggregate,……” across websites of banks and insurers in Singapore, before.

    Even though it may seem a little out of context on a bank’s page directed mainly at retail investors and depositors, its significance is immense. Let’s find out how.

    Why Do You Need to Know About the DI Scheme?

    The Deposit Insurance Scheme (DI Scheme) was established in 2006, essentially keeping the interests of small investors in mind. Under this scheme, your deposits in accounts held with a scheme member, will be aggregated and insured up to S$50,000, in case the member fails.

    This is the current limit. A consultation paper circulated by the Monetary Authority of Singapore has proposed to raise the cap to S$75,000 from this year onwards. However, the new cap has not yet been implemented.

    Will Your Deposits in a Joint Account Be Protected?

    The answer is yes. The balance in a joint account will, for calculation purposes, either be equally distributed among account holders or distributed in a ratio that’s mentioned in the bank’s documents. Thereafter, your portion of the account balance will be added to that of the other insured deposits, and indemnified for up to S$50,000.

    Your deposits under the CPF Supplementary Retirement Scheme (SRS) and the CPF Investment Scheme will be considered separately. Your savings under the various eligible CPF schemes will be aggregated and insured up to S$50,000.

    Let’s consider an example for the sake of clarity. Suppose, you have a joint fixed deposit with your spouse in the ratio of 3:1 in your favour (as per the records held by your bank). If the total deposit is S$56,000, your share of the deposit is S$42,000. Let us also assume that you have a life insurance policy of S$10,000 under your name, with the same bank.

    The compensation will be calculated as follows:

    Type of Deposit Account Balance in Each Account Sum Insured by SDIC Sum Not Insured by SDIC
    Individual savings account S$10,000    
    Share from joint account S$42,000    
    Total balance S$52,000 S$50,000 S$2,000

    The same scheme rules and conditions apply to sole-proprietorship businesses also.

    Will Your Foreign Currency Deposits Be Protected Too?

    To provide an answer to this question, let us consider another example here. Let’s say that you have a CNY (Chinese Yuan) foreign currency deposit with a bank. You have deposited an amount equivalent to S$10,000 in this account. Approximately, that would come up to a little over 48,300 Chinese Yuan.

    Let us also assume that you have a savings account with a balance of S$20,000 and a Singapore dollar (SGD) time deposit of S$17,000.

    This is how the DI Scheme compensation will be calculated in your case:

    Type of Deposit Account Balance in Each Account Sum Insured by SDIC Sum Not Insured by SDIC
    Bank savings account S$20,000    
    SGD time deposit S$17,000    
    CNY time deposit CNY48,300 approximately (S$10,000)    
    Total balance S$47,000 S$37,000 S$10,000 or CNY48,300

    Foreign currency term deposits aren’t insured under the DI Scheme. Only your Singapore-dollar-denominated deposits will be protected.

    Are Your CPF Investments Insured Under the Scheme?

    Have you or your employer voluntarily topped up your SRS account? You’ll be pleased to learn that along with your investments under the CPF investment scheme (CPFIS), the monies placed by you in the SRS Account will also be insured up to S$50,000.

    On your SRS Account contributions, you can claim a tax relief of up to S$80,000 annually. You’ll only be taxed 50% of the withdrawal amount at the time of your retirement.

    CPF allows you to invest your Ordinary Account (OA) monies under the CPF Investment Scheme after setting aside S$20,000 and invest your Special Account (SA) monies under the scheme after setting aside S$40,000.

    The benefits of investing under the two schemes are quite obvious. Let us assume that you have contributed S$30,000 to your SRS Account and invested S$35,000 in an investment portfolio under CPFIS.

    The calculation of DI Scheme compensation for your CPF investments will be done in the following way:

    Type of CPF Contribution Contribution Amount Sum Insured by SDIC Sum Not Insured by SDIC
    SRS Account S$30,000    
    CPFIS investment portfolio S$35,000    
    Total balance S$65,000 S$50,000 S$15,000

    Will Your Business Accounts Be Protected Under the Scheme?

    If you’re a sole proprietor, your personal savings accounts and business/personal current accounts will be protected under the scheme. So, if you have a balance of S$32,000 in your personal savings account with a particular bank and another S$35,000 in your business current account with the same bank, the compensation you can claim, if the bank fails, will be calculated in the following manner:

    Type of Deposit Account Balance in Each Account Sum Assured by SDIC Sum Not Assured by SDIC
    Personal savings account S$32,000    
    Current deposit account S$35,000    
    Total balance S$67,000 S$50,000 S$17,000

    The rules, are slightly different for trust accounts, whether held by you in personal capacity or on behalf of your business. Let’s see where the rules differ.

    What Is the Extent to Which Your Trust Accounts Will Be Covered?

    Trust accounts held by you are insured up to S$50,000, individually. That means if you have two separate trust accounts and a personal savings account, all the three deposits will be considered separately for the purpose of DI compensation and you can enjoy a coverage of up to S$50,000 for each of them.

    Let us now consider two separate examples to make things clear.

    Example 1: You are maintaining a trust account for your wife with a bank and currently it has a balance of S$52,000. You are simultaneously maintaining a trust account for your son and the balance in it is currently S$21,000.

    Apart from these two, you also have a structured deposit with the bank, the current balance in which, is S$47,000.

    If for some reason, your bank were to go bust today, you can claim a compensation for up to:

    Type of Deposit Account Balance in Each Account Sum Assured by SDIC Sum Not Assured by SDIC
    Trust account for wife S$52,000 S$50,000 S$2,000
    Trust account for son S$21,000 S$21,000 0
    Structured bond S$47,000 S$47,000 0
    Total balance S$120,000 S$118,000 S$2,000

    Let us now consider the second example.

    Example 2: Let’s say, you have a sole-proprietorship business. You’re currently maintaining two separate accounts – office current account, clients’ current account with a bank. You currently have a balance of S$73,000 in your office account and S$36,000 in clients’ account. So, the aggregate balance in the two accounts will be insured up to S$86,000.

    This is how you can calculate it yourself:

    Type of Deposit Account Balance in Each Account Sum Insured by SDIC Sum Not Insured by SDIC
    Office current account S$73,000 S$50,000 S$23,000
    Clients’ current account S$36,000 S$36,000 0
    Total balance S$109,000 S$86,000 S$23,000

    [Disclaimer: The figures shown here are for illustrative purposes only. BankBazaar will bear no responsibility for any discrepancy or difference that may arise in real life.]

    The DI Scheme, administered by SDIC, has made deposits in banks and non-banking financial institutions much safer. Now you know why your hard-earned money won’t just disappear into thin air, in case your bank were to fail.

    You’re, however, still recommended to do your due diligence at the time of making an investment or a deposit.

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