Which types of deposit are covered by deposit insurance?

15:12-23/08/2022

Deposit insurance is considered a "steel shield" that protect depositors. According to the Law on Deposit Insurance, insured deposits are deposits in Vietnamese Dong of individuals with insured institutions in the forms of time deposits, demand deposits, savings accounts, certificates of deposit, bills, notes and other types of deposits as stipulated in the Law on credit institutions.

In Vietnam, putting savings money in the banking system is recognized as a safe investment channel. Even though the banking system has to face many difficulties and challenges, deposits in general and savings deposits in particular still grow steadily year by year..

Looking back ten years ago, at the end of April 2012, the State Bank of Vietnam (SBV) announced residential deposit data for the first time, whereby the total amount of deposits reached nearly 1,46 million billion VND in total of 88,8 million people. Until now, the population in Vietnam has risen to 98,8 million people, the people's income has also been continuously improved. The data of the International Monetary Fund (IMF) appears that GDP per capita in Vietnam in 2021 reached 3.743 USD (which doubles the amount compare to 2011) and continued to grow.

According to the latest update of the SBV in May 2022, the number of deposits in credit institutions reached nearly 5,56 million billion VND. Thus, the GDP per capita is double compared to 10 years ago, and the amount of deposits per capita is 3,5 times higher.

It can be seen that the above growth is thanks to the constant creativity and innovation of the Vietnamese banking system. Savings mobilization forms are progressively diversified and convenient to suit people's needs, from ordinary forms of savings (time deposit, demand deposit) to promotional forms, increasing benefits for customers such as: Savings for children, savings for individuals to accumulate in the future, retirement savings... Especially, the banking industry has actively and positively integrated, participated in the industrial revolution 4.0, implementing the digital transformation plan, so that customers can deposit online savings through the internet banking, mobile banking instead of direct transactions at the bank.

Besides, creating a safe legal framework for savings deposits is always the top concern of the Government and the SBV. The law stipulates that participation in deposit insurance is mandatory for credit institutions that raise deposits. These institutions must pay deposit insurance premiums at the rate of 0,15%  of deposit amount on average. Through that, each citizen depositing money into credit institutions is insured with a coverage limit of 125 million VND.

According to the provisions of Article 18 of the Law on Deposit Insurance, insured deposits are deposits in Vietnamese Dong of individuals with insured institutions in the forms of time deposits, demand deposits, savings accounts, certificates of deposit, bills, notes and other types of deposits as stipulated in the Law on credit institutions. This regulation shows that the deposit insurance policy is responsive and able to protect almost all of depositors at credit institutions.

In particular, demand deposit - the most common and used form of deposit is also insured. Accordingly, the bank card holders or a bank account holder is also a depositor with demand deposit. This deposit type does not limit the deposit time and the balance in the account.

Currently, most agencies, companies and businesses open bank accounts for officials and employees to pay salaries through the account. This is both a modern and useful method for employees, also helping employees' wages be protected by the deposit insurance policy. Until now, in Vietnam, the proportion rate of adults with a bank account is 66%. With an average growth rate of around 11% from 2015 to 2021, it means that the role and responsibility of the deposit insurer for people's deposits is increasing more and more.

In the context that the e-commerce market needs suitable payment tools, e-wallets are expected to help buyers and sellers quickly connect to each other. Over the past years, in Vietnam, many financial technology companies have appeared, which creates a new consumer concept, e-wallets, such as: Momo, ZaloPay, AirPay, Payoo, etc. As of May 9, 2022, there are 48 non-banking organizations licensed by the SBV in order to provide intermediary payment services. By the end of March 2022, the total number of activated e-wallets was about 39,19 million wallets (an increase of 3,68% compared to the end of 2021). The total number of successfully actived e-wallet reached approximately 584 million with a total transaction value of more than 271 trillion VND (increased nearly 46% in quantity and nearly 106% in price). This showed that e-wallet is a favored and popular payment method by a lot of people.

However, under the Deposit Insurance Law, deposits that have been transferred from a bank account to an e-wallet for transactionsare not insured deposits. Clause 3, Article 4 of the Law on Deposit Insurance also stipulates that, "insured institution means credit institutions or branches of foreign banks established and operating under the Law on Credit Institutions and permitted to take deposits from individuals". Therefore, financial technology companies are not a part of insured institutions.

Moreover, the Law on Deposit Insurance and its guiding documents do not clearly define “other forms of deposit”. Therefore, there are different views in determining insured deposit for different types of deposits forms such as: margin deposit, prepaid cards, etc. According to the recommendations of the International Association of Deposit Insurers (IADI) in 2014 about expanding access to financial services, the deposit insurer should coordinate with supervisory agencies and members of the financial safety net and expandcoverage to valuable papers. It is suggested that the legal document system on deposit insurance in Vietnam be improved and revised. Specifically, it is essential to study and consider margin deposit, deposits in prepaid cards, money in e-wallet accounts (maybe limited to account holders) covered by deposit insurance to adapt to the financial context and new consumption trends of people.

Communication Department