Foreign Currency Fixed Deposit

[riversandlakes]

After weeks of digging, it seems SGD FD rates sucks big time, even in Malaysia. NZD FD rates are the highest at the moment, up to 6.9% for 12 months.

Does anyone know what the catch is for converting my SGDs into NZDs and put it as FCFDs?

[yoongf]

If u had done the Deposit when NZ to S$ was 1.20, and it's now 1.15, it would translate to a 4% forex loss over a period of 5 months.

http://sg.finance.yahoo.com/m5?s=NZD&t=SGD&a=1&c=1

Whatever extra interest earned, would have been eroded by the loss in forex.

[riversandlakes]

thank you for the input, yoongf

so the biggest catch is the volatility of forex?

but on the other hand, now that SGD is strengthening against NZD, this will be good time to buy NZDs, no?
besides, for the past five years, both currencies have been hovering the band of 1.00...

http://sg.finance.yahoo.com/m5?s=NZD&t=SGD&a=1&c=3

[yoongf]

Yes.. the catch is in the forex and also the exchange rate used at the point of buying and eventually selling, NZ dollars. Seems like those with private banking accts can get much better rates (closer to spot rates) than normal customers.

What I have been told.. Aust dollars (and along with NZ dollars) is expected to weaken till the end of the yr. Thus.. the higher interest rates offerred for NZ deposits is to retain such deposits in that currency.

I know little about the forex markets, except the fact that I am stuck with some NZ dollars. Best is to speak to someone in the industry informally. Those front line banking ppl tend to paint a very optimistic picture about the forex markets, which makes me suspect that they are only interested in meeting performance targets.

[riversandlakes]

indeed, you are right. thank you for the tip
http://www.hlb.com.my/trearate.html

AUD and NZD both have the highest interest rates. Expected to weaken till the end of the year, huh? That can only mean SGD will strengthen? Noted that SGD FCFD interest rate is the lowest among the nine major currencies...

From dbs.com.sg fcfd calculator, under the break-even section, NZD will have to take a hit till NZD 1.086=SGD 1 for you to start losing (as compared to normal SGD FD). Until then, you stand a chance to gain from the 6.9% rate, no?
The last time 1.086 was reached in May04, but that was strengthening upwards, never downwards.

From Y! graph NZD has been strengthening against SGD for the past five years. It's not weakened past 1.086 as far as the graph could see...

What's a "spot rate"?

[yoongf]

The spot rate is the single exchange rate used by banks to determine buy/ sell rates. For example.. if 1 NZD to SGD is say.. 1.140, when u buy NZD, you'll probably be buying NZD at 1.145 and selling at 1.135. This is called the spread, and private banking clients get smaller spreads. And the value of the deposit must be based on the lower selling rate.

BTW, I don't think anyone is now using SGD FD rates as the baseline for investment comparisons! If you're in Sg, probably a good investment baseline would be what the REITS can offer. The dividends are decent, as well as the capital appreciation. Unless u believe that shopping malls like Plaza Singaporura will ever have vacant shops, REITs isn't that risky.

[riversandlakes]

It seems REITS is a real-estate investment scheme?

Hehe dbs.com.sg was using the S$ FD as comparison, hence...

[riversandlakes]

With real SGDs in my hands, why will I ever visit the bank and exchange for NZDs there? We can always get better rates from the money changers, no?

I'm just nervous about hard-earned dollars into investments of any kinds, besides FDs ;(

For me, lower yield is fine, as long as principal sum is guaranteed to not ever disappear...
I will jump off any building if I lose these 50k accumulated over five years of hard work...

The spot rate is the single exchange rate used by banks to determine buy/ sell rates. For example.. if 1 NZD to SGD is say.. 1.140, when u buy NZD, you'll probably be buying NZD at 1.145 and selling at 1.135. This is called the spread, and private banking clients get smaller spreads. And the value of the deposit must be based on the lower selling rate.

BTW, I don't think anyone is now using SGD FD rates as the baseline for investment comparisons! If you're in Sg, probably a good investment baseline would be what the REITS can offer. The dividends are decent, as well as the capital appreciation. Unless u believe that shopping malls like Plaza Singaporura will ever have vacant shops, REITs isn't that risky.

[yoongf]

Seriously.. I recommend u take a look at Capitalmall REIT. Share price been going up consistently, not to mention there are regular dividends. Well.. only if u believe that MRT connected shopping malls won't be vacant.

As for getting better rates at money changers.. err.. cash from money changers isn't exactly convenient if u need to send over for the kid's tuition or making huge investments.