Fixed Deposits Are Insured

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The Malaysian government have recently (last 6 months) put in place a deposit insurance system. It is administered by Perbadanan Insurans Deposit Malaysia (PIDM).

PIDM provides coverage on conventional (and Islamic) deposits placed with member institutions which are all the commercial banks, including foreign banks operating in Malaysia. PIDM insures eligible deposits up to RM60,000 per depositor per member institution.

Eligible deposit accounts are automatically insured at no charge to the depositor and include current, savings, fixed and investment deposits as well as certified cheques and bank drafts.

regards,
Scott

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On reflection, it's interesting that the insurance limit is RM60,000 which is exactly the amount that needs to be left as an FD after taking out cash for property purchase, medical and education.

Is this a coincidence or a calculation?

regards, Scott

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hi,

Today's The Star, StarBiz, has an article on : Return to Deposit Insurance on the Cards.

It points out that on October 16th 2008, Malaysia (and Singapore) announced a blanket guarantee on all deposits until the end of next year. The article supposes that at the end of this period the PIDM guarantee will come back into effect.

What is interesting is that the PIDM guarantee of RM60,000 covered the residual amount that MM2H visa holders needed to leave in the FD once approved expenses were taken out. However the residual amount has now been raised to RM100,000.

Maybe the PIDM limit will be raised? It needs tracking to see what happens.

regards, Scott

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hi,

Just to update this thread.

If you want to find out about the deposit insurance scheme it's at : www.pidm.gov.my

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I am little worried at this stage...

Deposit is insured until end of this year... But no idea what happens after that.

I think it is not very good investment to put 300,000 in 2.5% interest if there is any level of risk involved with the capital. During last 15 years I have got average of 10.7% interest in stock market. Malaysian covernment is putting me on hard decision: will the possibility for tax free overseas income fully compensate loosing potential annual income of 24,600RIM (10.7-2.5 = 8.2% of 300,000 RIM)? I really don't count bank savings any more secure than stock market without the reliable state insurance program (We have seen how vunerable banks can be).

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hi, Pete,

And welcome to the site.

The Malaysian government has a blanket cover for all deposits till the end of 2010. After that, the limited cover from the PIDM scheme comes back into play. The cover is RM100,000.

No-one knows if this cover will be raised given financial developments over the past 2 years. There has been no mention of the raising issue in the news media. Also no-one knows if the Malaysian government will extend the blanket cover. Guess it depends on action by Singapore, Thailand et al.

I've mentioned the disparity between the raised mm2h FD, and the PIDM RM100,000 limit previously. It seems to be something that no-one at Motour, or wherever, has considered. Following the tendency of banks to collapse, mm2h becomes less attractive if participants are not able to freely move the FD from dodgy banks. It's a Catch 22 situation. Also if the amount of protection for the FD is only 1/3rd of the FD then it's a further unattractive feature of the mm2h scheme.

Guess all that anyone can do is to buy property and reduce the FD amount.   

However, CIMB has just announced a 41% profit for 2009. Maybank is the biggest bank by a factor of 2 or 3. As far as is known the Malaysian banks were not greatly (if at all) exposed to extreme-risk instruments as were the likes of Lehman Brothers and the rest.

It's not just a financial issue. The mm2h visa gives a renewable 10 years stay in Malaysia. The FD gets interest but keeping this amount of cash on deposit is the price that's paid for the visa.

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I agree with Scotts post #5.

I do not see the FD as an investment tool but a price to pay for the Visa.

I did not expect Malaysia to hand out this Visa without there being something in it for Malaysian Citizens.
I actually believe that getting any interest is a bonus.

The upside/downside is how much the Ringgit moves against the home currency of the MM2H holder, if the holder wishes to relinquish the visa and get the FD returned.

David

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To my knowledge none of the Malaysian banks went bankrupt in this current crisis. In the Netherlands 2 banks (Icesave and DSB) went down the drain in the last 18 months.

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Thanks fot the replies.

Davita. I understand your point. But if I count it as payment for the Visa, I would have to say the price is too high (300k/150k)...  maybe that is why I try to think it as investment... or savings. Anway as it is stated as FD, I would expect the capital to be secured againts possible turbulence and even against inflation - as it is until end of this year. I just feel very uncomfortable to bind myself something where I dont know the rules of the game.

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If you buy a house you can take a part of the deposit out again after a year. Here in Penang house prices still seem to go up (but you never know how long of course ).

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That is good point. So far I have had two main  criteria to select the place to live in Malaysia:
1. School quality/price for kids (one 9th-12th grade)
2. Quaity of inetrnet connections
... now I will add the third criteria: potential for the growth of the property price

Anyway. After buying the house there will still be 150k in FD - partly or not insured, depending what the goverment decides by the and of this year:

"Q: What happens in January 2011? Will PIDM revert to the RM60,000 limit? And will all the guaranteed banks continue to be guaranteed?
A: The temporary Government guarantee will expire on 31 December 2010. We plan to then revert to the explicit and limited coverage deposit insurance system. PIDM will monitor developments in the banking system and evaluate the need to increase the limit and the scope of coverage at that time."
(FAQ at http://www.pidm.gov.my/)

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The FD is more a question of liquidity than it is of return.
If you want a safe bank in Malaysia you can try Hong Leong. They don't have many MM2H but I know they run a very tight ship with regards to credit risk unlike some other banks (Public Bank for example).

Or you might want to deposit the money with an Islamic bank. I'm not sure if that would qualify for the FD but I bet it would. The Islamic banking system has some built-in protection beyond that of traditional banking.
I did this when I was in Malaysia. Just think profit rates rather than interest rates..

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I really do not follow this conversation.

My intent to join MM2H was for the opportunity to have a residency in Malaysia with its advantages of living in retirement cheaper and more congenial due to weather, than my home country, on a semi-permanent or permanent basis, of my choice.

The price for this was a requirement to create an FD of RM150,000 in my name in a bank in Malaysia, of my choice.

I already had more than this amount in a CDN FD in HSBC Canada which created my Global Premium Account Status. The interest on this account was 0%.

I transferred the required amount to HSBC Malaysia and was accepted BOTH by HSBC as my new Global Premium Account Status which earns 2.4%, and MM2H FD as requirement for the 10 year Visa.

HSBC is the worlds biggest bank by asset value.

My understanding is I can revoke my MM2H visa and have my FD returned...albeit in RM. Therefore, my investment risk, if I demanded my FD returned would be in the exchange rate back to CDN $, from which the FD was originally funded.

I accept that risk as the price for the Visa.

Some here are looking at the MM2H from a different perspective than mine.

Please forgive me for not 'getting' the conversation about investment and risk potential.

David

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Hi David

I have not followed the full intracacies of this discussion, but the main point is the risk of a bank (where you might have invested your FD) going bust and losing the lot. This is something to think about in view of the status of some well established banks that went bust in the credit crunch.

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hi,

My concern is that with an FD of at least RM150,000, and with the PIDM deposit protection maximum at RM100,000, there's a shortfall of RM50,000 in a situation where I can't withdraw the money without exiting mm2h.

And no one seems bothered about it. And I had some cash with Derbyshire Building Society offshore in the Isle of Man, and received a letter to say that the largest Icelandic bank, Kaupthing, had taken over and the rest is history. And it happened very fast.

So what happens if I get a letter saying that Kaupthing has re-emerged from the Icelandic waters and is fishing in more tropical climes and has just bought up CIMB. I'd want my money out of CIMB toot sweet which automatically means goodbye mm2h. Yeh, this is very hypothetical, and unlikely, but who would have thought that Lehman Brothers would go extinct, or RBS be 85% state owned, or that Northern Rock wasn't rock solid.

I think that the folks at mm2h need to get in touch with Bank Negara and have a chat about it. Either raise the PIDM limit to cover the maximum RM300,000 FD, or lower the FD to meet the limit.

Another choice would be to allow my2homers to easily and simply change banks.