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$20,000 insured with the bank is a joke |
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Written by Wilfred Ling
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Friday, 03 October 2008 |
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Another area that is a great concern is with regard to fixed deposits and saving accounts in the bank. In Straits Times today, a person raise up this concerned. I have also spoken many times in the previous blog that this amount is too small. Here are some of my further comments: - If the banks in Singapore are 100% safe, MAS can just provide a blanket guaranteed that all monies in the bank is safe. No need to have any insurance scheme. Just a statement from the central bank of this assurance would do;
- Obviously the banks are not 100% safe that that's why there is an insurance scheme;
- But to insured the first $20,000 per depositor per bank is like a joke. It has been said that this will cover 80% of the depositors. I don't believe this statistics. Consider this simple reasoning: If a young person who just finish school earns $2000 per month in take home pay and save $1000 every month would have exceed $20,000 in just 20 months. This is not considering bonuses, pay increment and promotion. I have numerious clients who just started work two years ago with liabilities (due to school loan) and now their savings already exceeded $20,000. This is due to prudent saving discpline. By late 30s it is not unreasonable for people to earn $4000 or $5000 in take home pay. Some people who are luckly can earn $10,000 in take home pay eventually. Does that mean that these people are a lesser human than those who are poorer? What incentive is there for peope to work hard and upgrade themselves when their savings above $20,000 cannot even be guaranteed? This week, I have two persons asking me for advice whether is it better simply to keep cash at home rather than in the bank. I found these questions very sad because it reflects how pathetic the situation has become;
- If banks are very very safe, the premium they have to pay to have the depositors money isured will be very very low. Thus increasing $20,000 sum assured to say $1m should not be a big deal. Insurance works on probability of claim. If the probability is very low, the cost to get such insurance will be very low. I suspect that the actual premium is very high and that's why the sum assured is so low. Are the banks safe? Who knows? In the meantime, Ireland has provided a blanklet guaranteed for all depositors. See HERE
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