Is 2.5% guaranteed return per year good or bad? It is subjective.
The interest rate has been declining globally for more than a decade, and it has a tremendous impact on our daily lives. We are in an environment where savers lose and gamblers win. Skyrocket property price and Hong Kong unrest can testify this.
In my early article, I refer to what we are going through as “Financial Repression”. Saving was a virtue but no more. In the past, you can get a 4% interest without losing your sleep, but it is an uphill task today’s if not impossible.
As a result, the financial institutions are taking advantage of average men on the street by
- Issuing ridiculously low return perpetual securities.
- Borrowing long term debts from the public and increase corporate gearing to an unprecedented level.
- Use loan and financial engineering to manipulate dividend rates for yield hunger investors.
- Pushing up asset prices of real estate and stocks at the expense of debt holders.
But there is a strange phenomenon. Do you feel that despite all the talks of lowering interest rate, your bank deposit rates are getting higher and higher? And you see more “attractive” savings products such as
And they are all selling like hotcakes.
The governments, banks and insurance companies realize that they don’t even need to sell them through a commission-based intermediary such as stockbrokers, relationship managers, insurance agents or financial advisers. All they have to do is to put up an offer online.
Here are 3 such offers in the current market (no affiliate links).
#1. HSBC Life Online Endowment
HSBC has been quiet in the insurance business, but they have decided to revamp their insurance arm this year. They made a strong come back with attractive products such as
- Emerald Legacy Life Plan
- Life Protect Advantage
- Jade Legacy Universal Life Insurance
The latest offer is their HSBC Life Online Endowment.
In a nutshell,
- It is a 3 years savings plan.
- It offers a guaranteed return of 2.5% per annum.
- It is eligible for both cash and SRS funds.
- You can start as little as S$5,000 up to maximum S$100,000
- It has a death benefit coverage of 105% of the Single Premium.
- Hassle-free submission using MyInfo
- Quick direct payment options by PayNow or fund transfer.
#2. NTUC Capital Plus (CSN3)
The highlights of this product are
- A 3-year endowment savings plan.
- A guaranteed return of 2.30% p.a.
- Available for both cash and SRS.
- Apply directly online with a minimum of $5,000 using eNETS. You need a minimum $20,000 if you want to apply through your insurance agent or financial adviser.
- Stay protected against death and total and permanent disability (TPD before age 70).
- Guaranteed acceptance regardless of your health condition.
So the question is that why would people buy Capital Plus while they can get a higher return from HSBC endowment plan? There could be a few reasons:
- You have more than $100,000 to invest (more than HSBC’s limit).
- You are concerned that an insurance company may go under and you want to limit your exposure to the maximum protection given by the Policy Owner Protection Scheme.
- You simply love NTUC Income.
#3. Standard Chartered Jumpstart Savings Account
Nowadays there are many high yielding accounts such as DBS multiplier or OCBC 360 account, but they all come with some “conditions”.
JumpStart is a simple and high-interest savings account that offers 2.00% p.a. interest for account balances up to S$20,000. What I like is that it has no lock-in, no minimum spends and no requirement for salary-crediting.
You have the flexibility to access your funds anytime and earn competitive interest rates. It also comes with a Cashback debit card with no monthly or annual fees.
However, to open a JumpStart Account, you must be between 18 and 26 years old at the time that you apply for the account.
You need to have a valid SingPass with a MyInfo Profile, a Singapore mobile number and email address to open the account.
If you meet the age requirement, good for you.
Why do financial institutions offer such good deals?
As I always said in this blog, all financial offers must make economic sense and not a charity act.
The low-interest rate that you often hear about is referring to the long term interest which is beyond 10 years. That is why your mortgage interest has been kept low. But the short term interest rate was not the same.
Think about it, when you open a savings account, the bank essentially borrows money from you. If they pay you interest, they have to deploy it to somewhere with a higher yet safe return to make money. They may lend the money to
- People who need to refinance their long term obligations with short term loans
- People who simply need to borrow money for short term.
Our seemingly peaceful lives are built on the stability of the balance of short term and long term money supply. Now, this equilibrium is somehow broken, that is why you heard things such as “yield curve inversion”.
While short term money demand increases, the interest of short term savings account or plan increases. In a layman’s term, you can think that more people rather buy a fridge with a one-year instalment, rather than buy a car with a 10 years loan.
But in the world with so much liquidity, why is there still as strong demand for short term debts? Where is all the money gone? Leave your comments and share your opinion.
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