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Singapore Dollar Fixed Deposit/Time Deposit

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the lynx
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Postby the lynx » Thu, 08 Mar 2012 4:49 pm

OK guys, after reading up what MS pointed out, I have convinced myself that I can't stomach DCD, not even Foreign Currency TD/FD. Still too 'green' to grasp the whole game of currency exchange and fluctuations.

Following up on carteki's recommendation, I'm curious of one thing about step-up deposit. What's the catch? Especially in comparison to the traditional fixed deposit?

:paging for carteki:

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Postby JR8 » Thu, 08 Mar 2012 8:31 pm

the lynx wrote:Following up on carteki's recommendation, I'm curious of one thing about step-up deposit. What's the catch? Especially in comparison to the traditional fixed deposit?
:paging for carteki:


In her absence I'll toss in my 2 cents... :)

If there is a catch it is that they know that some customers will deposit their money for say six months but due to unforeseen circumstances have to withdraw their funds early. Read the smallprint about what happens in such circumstances, it is probably the interest earned will be materially less.

The bank will know this, they will have calculated the likely early withdrawal rate, and so can be seen to be offering great headline rates, knowing that their aggregate pay-out rate will be lower.

It is not an issue for the customer however, if you know there are no circumstances under which you would have to withdraw funds early.

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Postby Strong Eagle » Thu, 08 Mar 2012 10:23 pm

JR8 wrote:
the lynx wrote:Following up on carteki's recommendation, I'm curious of one thing about step-up deposit. What's the catch? Especially in comparison to the traditional fixed deposit?
:paging for carteki:


In her absence I'll toss in my 2 cents... :)

If there is a catch it is that they know that some customers will deposit their money for say six months but due to unforeseen circumstances have to withdraw their funds early. Read the smallprint about what happens in such circumstances, it is probably the interest earned will be materially less.

The bank will know this, they will have calculated the likely early withdrawal rate, and so can be seen to be offering great headline rates, knowing that their aggregate pay-out rate will be lower.

It is not an issue for the customer however, if you know there are no circumstances under which you would have to withdraw funds early.


Actually, the banks get away with murder here. I've seen advertised "CD's" or savings accounts that were actually investments in currency swaps... how else to get 5 to 7 percent? Yet, one needs to read fine print so small to know this.

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Postby JR8 » Thu, 08 Mar 2012 10:28 pm

Didn't get DBS get hammered for just that a few years ago?

Preying on innate greed... these products need greater regulation to protect people from themselves.

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Postby the lynx » Thu, 08 Mar 2012 11:44 pm

JR8 wrote:
the lynx wrote:Following up on carteki's recommendation, I'm curious of one thing about step-up deposit. What's the catch? Especially in comparison to the traditional fixed deposit?
:paging for carteki:


In her absence I'll toss in my 2 cents... :)

If there is a catch it is that they know that some customers will deposit their money for say six months but due to unforeseen circumstances have to withdraw their funds early. Read the smallprint about what happens in such circumstances, it is probably the interest earned will be materially less.

The bank will know this, they will have calculated the likely early withdrawal rate, and so can be seen to be offering great headline rates, knowing that their aggregate pay-out rate will be lower.

It is not an issue for the customer however, if you know there are no circumstances under which you would have to withdraw funds early.


True enough. All banks stipulated penalty of few hundred dollars (depending on which bank) for early termination/withdrawal in less than 6 months.

For StanChart, as example, offers 0.350% p.a for fixed deposit (like I mentioned in my first post here above). For its step-up deposit (for the same initial deposit), first cycle of 3 months 0.8% p.a, second cycle 1.0% p.a, third and fourth 1.1% p.a, fifth and sixth 1.2% p.a, seventh and eighth 1.6% p.a.

Still way higher than the fixed deposit as I see it.

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Postby JR8 » Fri, 09 Mar 2012 12:21 am

It works out at a net of 1.2% pa over the two year term of the deposit. Less if you're in for less cycles.

They're incredibly vague about what happens if you withdraw funds early:

':4. Early withdrawal outside the Cycle Maturity Date must be made in full and is subject to any conditions we may impose (including a period of notice, reduced or no interest, fees and other charges). We may not pay all the interest accrued. Partial withdrawal or top up of the principal during the term of the Contractual Tenor is not allowed. Any request for topping up will be regarded as a new application for time deposit and is subject to the prevailing interest rates and conditions we may impose at that relevant point in time.

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Postby carteki » Sat, 10 Mar 2012 1:01 pm

the lynx wrote::paging for carteki:


k - I'm back - been on the water for a few days ...

I agree - it doesn't make sense as to why the banks offer a blatantly better product alongside a very boring FD. It seems that the step-up deposits come in as "special offers" when they're looking to build up their balance sheets. That way they don't "canabalise" their existing business. The step-up deposits may also be "new to bank funds only". So once you've given them your hard earned cash you'll leave the funds there in a lower earning FD rather than move to a new bank.

Don't really know the answer though.

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Postby Mad Scientist » Sat, 10 Mar 2012 7:17 pm

MY understanding is CD is based on new money to the bank whereas FD or TD is revolving money.
Anyway SG currency never gives good return. All QFB or QFLB or even FSB is required under MAS to hold huge percentage of Gahmen Bonds.
On top of that MAS is always manipulating and diluting the currency strength.
It is not an open market currency
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Postby BillyB » Sun, 11 Mar 2012 1:12 am

Is it really worth locking your money into anything that pays below the rate of inflation? Regardless whether you're getting 25 or 100 bps, you're on a losing battle to cover inflation and NPV.

Unfortunately, the banks will only offer 'good' rates when they want market share in a particular sector or asset class, or are under regulatory pressure. Nothing changes. they still have a cost of capital which dictates their business to most extents.

Australia worries me though - the AUD is too strong, it's hugely dependent on China buying up its commodities, there is unrest in the Government, and despite record profits at ALL the local banks they are cutting staff and outsourcing roles (what do they smell in the future?), ROE is down across all asset classes, there is tighter regulations on capital adequacy on the balance sheet and forcing the banks to hold more capital in anticipation of stress conditions, and the sentiment seems a little grim.

If you can get access to AUD local saving rates, then I'd bite anyone's hand off to get 4-5% return. Show me a global hedge fund or asset-manager, with the same credit/risk rating as the aussie banks, that will return that (without clauses) in these conditions.

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Postby aster » Sun, 11 Mar 2012 1:46 am

BillyB wrote:Australia worries me though - the AUD is too strong, it's hugely dependent on China buying up its commodities, there is unrest in the Government...


Yes, that, and it's susceptibility to the global economic outlook. The last time the $hit hit the fan in the US (and elsewhere) it was the AUD that tanked completely, more than any other currency I looked at. It was practically in complete and utter free-fall.

The same thing will likely happen the next time the financial markets go into cardiac arrest. Carry trade is nice when the global economic outlook is bright and the AUD is steady. But when it begins to stutter then investors will jump ship straight away, covering their asses and driving the currency in a downwards spiral.

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Postby Mad Scientist » Sun, 11 Mar 2012 10:14 am

aster wrote:
BillyB wrote:Australia worries me though - the AUD is too strong, it's hugely dependent on China buying up its commodities, there is unrest in the Government...


Yes, that, and it's susceptibility to the global economic outlook. The last time the $hit hit the fan in the US (and elsewhere) it was the AUD that tanked completely, more than any other currency I looked at. It was practically in complete and utter free-fall.

The same thing will likely happen the next time the financial markets go into cardiac arrest. Carry trade is nice when the global economic outlook is bright and the AUD is steady. But when it begins to stutter then investors will jump ship straight away, covering their asses and driving the currency in a downwards spiral.
\

I totally disagree.
You should read this before you assumed . Facts do not lie

http://www.ecu.edu.au/__data/assets/pdf ... -Banks.pdf
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Postby aster » Sun, 11 Mar 2012 11:05 am

I have a feeling you're talking about something completely different. This has nothing to do with defaulting banks. We're simply discussing the AUD here and its susceptibility to the global economic outlook, commodity prices, etc.

If the US economy tanks or the Euro breaks apart, the AUD will crash. If the global economic outlook dips, so will the AUD. The currency is a barometer of global sentiment.

You want more facts then just look at what happened in 2008 and how the AUD went into free-fall. I have never, ever seen a ("Western") currency fall so drastically and in such a short period of time.

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Postby the lynx » Tue, 13 Mar 2012 9:06 am

JR8 wrote:It works out at a net of 1.2% pa over the two year term of the deposit. Less if you're in for less cycles.

They're incredibly vague about what happens if you withdraw funds early:

':4. Early withdrawal outside the Cycle Maturity Date must be made in full and is subject to any conditions we may impose (including a period of notice, reduced or no interest, fees and other charges). We may not pay all the interest accrued. Partial withdrawal or top up of the principal during the term of the Contractual Tenor is not allowed. Any request for topping up will be regarded as a new application for time deposit and is subject to the prevailing interest rates and conditions we may impose at that relevant point in time.


I think you missed the point before that:

3. You are allowed to make full withdrawal on each Cycle Maturity Date without penalty. However, if you make any withdrawal before the Cycle 1 Maturity Date, an administrative fee of S$250 per Account will be charged.

I spoke to one of the bank officers and he explained that if one were to start the deposit on say, Jan 5th. Hence point 3 would apply if withdrawal were to be made before Mar 5th.

On point 4, let's say one were to withdraw on Jun 1st instead of Jun 5th. Then the interest would be paid either pro-rated or none at all for that particular cycle.

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Postby JR8 » Tue, 13 Mar 2012 7:30 pm

the lynx wrote:
JR8 wrote:It works out at a net of 1.2% pa over the two year term of the deposit. Less if you're in for less cycles.

They're incredibly vague about what happens if you withdraw funds early:

':4. Early withdrawal outside the Cycle Maturity Date must be made in full and is subject to any conditions we may impose (including a period of notice, reduced or no interest, fees and other charges). We may not pay all the interest accrued. Partial withdrawal or top up of the principal during the term of the Contractual Tenor is not allowed. Any request for topping up will be regarded as a new application for time deposit and is subject to the prevailing interest rates and conditions we may impose at that relevant point in time.


I think you missed the point before that:

3. You are allowed to make full withdrawal on each Cycle Maturity Date without penalty. However, if you make any withdrawal before the Cycle 1 Maturity Date, an administrative fee of S$250 per Account will be charged.

I spoke to one of the bank officers and he explained that if one were to start the deposit on say, Jan 5th. Hence point 3 would apply if withdrawal were to be made before Mar 5th.

I was up to speed on that I think :). My concern was re: the interest receivable and fees payable if you make complete withdrawal other than on a cycle date. Now the bank can declare a juicy headline rate precisely because they know a lot of people will never get it and that's why understanding the penalty clauses is important. Not easy when the T&Cs are as vague as above...



On point 4, let's say one were to withdraw on Jun 1st instead of Jun 5th. Then the interest would be paid either pro-rated or none at all for that particular cycle.

One would hope so but... There is nothing in the T&Cs saying that interest from previous full-cycles is banked, rather it says 'We may not pay all the interest accrued.'

Anyway as I said earlier I might be being pedantic, but in any case if you are confident of putting money away for 2 years and not touching it I don't think you should worry...

p.s. In the EU you'd have to have much more specific T&Cs, and that would have to include worked examples with numbers, including breaking the TD on other than cycle dates. But I realise things don't work like that everywhere...




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Postby sunil816 » Fri, 16 Mar 2012 1:04 pm

if you want return, I would avoid the Singapore banks. Pretty minimal chance of the larger Malaysian banks defaulting in my opinion, and even if they had problems, would be surprised if the Singapore govt let Singapore retail investors suffer large losses.


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