Depositors in Singapore are very loyal and risk-averse. Many have the mistaken belief that Singapore banks are safer than foreign banks in Singapore.
In Singapore, depositor’s funds are insured up to $50,000, what this means is, if you are depositing only $5,000 to $50,000, even if that foreign bank goes bankrupt, you will not lose your deposit. (Reference 1)
All Qualifying Full Banks (QFB) and Finance companies are members of the Deposit Insurance scheme (DI scheme), except those exempted by the Monetary Authority of Singapore. (Reference)
A list of banks and financial institutions covered under the deposit insurance scheme are found in Reference 2.
Maybank’s website (Reference 3) indicates 2% for their fixed deposit while CIMB (Reference 4) is paying 1.95% ($20,000 and above) for their 24 months fixed deposit (13 Feb 2016), while OCBC’s 36 month fixed deposit rate ($5,000 to $20,000) pays only 0.65%.
In short, depositors in OCBC or DBS are being underpaid by more than 1% in fixed deposit rates due largely to faith.
The interest rate difference indicates an inefficient market.
When the depositors finally realized that there is no difference depositing with DBS, OCBC or Maybank or CIMB, local banks will have to raise deposit rates or lose their Fixed Deposit funds to other banks who are paying much more interests to depositors.
When that happens, people who are on FHR or Fixed Deposit Mortgage Rate (FDMR) home loans will feel the pain when they receive letters from OCBC.
Perhaps, a surer bet will be to go directly for a Fixed Rate package if the difference is not very much more expensive.
