Posts Tagged ‘Fixed Deposit’
More about interest rates, inflation and investment instruments.
A few days ago I posted on how interest rates and inflation have been affecting investors and savers. One day later, on Friday, DBS announced that it will be slashing what it pays savers. Business Times Article
Effective Oct 15, interest rates for its POSB savings account will be pared to 0.1 per cent from 0.125 per cent for small savers. The next higher rate of 0.25 per cent, all savings accounts – POSB and DBS – will require a minimum of $100,001, double the existing $50,001. For balances above $1 million, DBS will pay 0.275 per cent for all savings accounts.
DBS autosave, which is the current account, will continue to earn the highest interest rates. Balances will have to be above $250,000 to earn 0.325 per cent, current balances above $100,000 earn 0.325 per cent. Remaining balances above $1 million will earn a princely 0.35 per cent.
DBS, the nation’s largest bank, has been struggling with record low interest rates which eats into its profit margins. The benchmark three-month Sibor or wholesale lending rate has been hitting new lows last month. It has slid to 0.50501 per cent from a week ago, and down from 0.51889 per cent on Sept 13 – the lowest in at least 23 years.
Also recently, Lorna Tan wrote an article Straits Times “How to make your money work harder.” In the article, she suggested 4 instruments, Structured deposits, Bonds, Bond Funds and Stocks with dividend yields.
Alternatives to Fixed Deposits
There is high demand from many clients for an instrument which gives them more returns than fixed deposit but just slightly more risky than common instrument. Now, there are a few alternatives to the good plain old fixed deposit. Let’s examine the returns, risks, as well as the characteristics like liquidity and convenience.
- Bond Funds
Bond funds invests in bonds which essentially are instruments guaranteed by the companies or government entities issuing them. Advantages of bond funds is that they are easily available and the denomination of the investment is relatively small at a thousand to a few thousand dollars. One disadvantage are bond funds do fluctuate slightly in value as underlying bonds in the fund do fluctuate in prices during their lifetime.
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