How Safe Is Your Money In the Bank?

Given the current crisis surrounding many global financial institutions and their recent collapses and/or near collapses, question must be asked about how safe is it with your money deposited in your local and overseas financial institutions?

Well, for most of the advance and developing countries, the funds in the banks are most likely insured or guaranteed, but subject to a certain limit. In the case of Malaysia, all bank deposits in financial institutions licensed under the Banking and Financial Institutions Act 1989 are automatically insured under the Deposit Insurance Scheme administered by Perbadanan Insurans Deposit Malaysia (PIDM). All financial institutions are automatically registered with PIDM, thus the compulsory deposit insurance which members pay. This covers both commercial either conventional or islamic bankers.

Insurable deposits include:
- All deposit products including current, savings, fixed and investment deposits;
- Certified cheques, bank drafts and other similar payment instructions drawn or made against a deposit account

Non-insurable deposits include:
- Deposits not payable in Malaysia
- Foreign currency deposits

Please take note that the limit for the above guarantee is only up to RM60,000 (US$17,242) per depositor per member institution. This limit covers both principal amount and interests, and applies separately to both conventional and Islamic deposits.

The following financial institutions are however, not covered under the deposit insurance scheme:
- Merchant banks and discount houses (which do not accept retail deposits from the public)
- Overseas branches of domestic financial institutions
- Development financial institutions, including Bank Simpanan Nasional,
Bank Pertanian Malaysia and Bank Kerjasama Rakyat Malaysia Berhad
(which are either backed by Government guarantee or by their status as statutory bodies)
- Insurance companies (which are separately covered under the Insurance Guarantee Scheme Fund established by the Insurance Act 1996)
- All non-bank financial intermediaries such as provident and pension funds, co-operative societies, housing credit institutions and building societies, which are not supervised or regulated by BNM.

For more information on PIDM, please visit this link.

In U.S., the insurance deposit limit per depositor per FDIC-insured bank is US$250,000 for the period from October 3, 2008, through December 31, 2009. Normal coverage is up to US$100,000. For more information, please visit this link.

For European Union, the minimum bank deposit guarantee has just been raised yesterday to euro50,000 (US$68,160). However, not all European countries adopt the same policy.