Mum is going to the Bank again - Is Fixed Deposit Or Structured Deposit Good?

Warning: The following contains financial references.

Hi fellow neighbours,

an average Singaporean frequents the Automated Teller Machine (ATM) every now and then... either for withdrawing out cash or simply to do Update Of Passbook. (Some aunties will prefer to pronounce this routine as Up - Day instead) They will typically say this:

" Eh Boy, I am going downstairs to UP- DAY  "da Book" ar... if the Day becomes black and rains, remember to Close the Windows"

Does a ATM Machine reminds you of Jackpot Machine?

Now my mum is one of whom simply adores to play with such Machines to do the usual Up-Day every other week. Like as if it was a Jackpot Machine.. That is something i could never comprehend.

Now, usually our beloved Bankers ☺ will start swarming by the banking hall to introduce certain Bank products such as Fixed Deposits or Structured Deposits to your mums.

A typical Fixed Deposit (Timed Deposit) interest rate  hover around 0.7% average per annum
whereas
A typical Structured Deposit (SD) interest rate hover around 1.5% average per annum
in the Singapore current market trend.

Various points to note for Fixed Deposit (Timed Deposit)

1. Fixed Deposit, the tenor is more often than not determined by the client (yourself), and the interest payout is usually on a quarterly basis, month 3, month 6, month 9, month 12 respectively.

• What this relates to means that say say if you were to put for 8 months, you will ONLY be getting the payout due till month 6.
• What benefits a client is the true flexibility to make a withdrawal of this savings as and when without incurring a penalty cost of losing the principal amount.
  

Now, a typical Structured Deposit (SD) looked something like this where you can see the advertisement hanging on their bank walls:

A Typical Structured Deposit (Expired Promotion) from the Bank in the market.

At this time, mum will be gleaming with light :

"Wow... 8.75% returns? This is so good!?  Better than my Fixed Deposit at 0.7% ar."

And the Banker will say : "Yes Auntie... this is really good, it is 8.75% when you put for 5 years. Better than Fixed Deposit only gives 0.75%. Come auntie, I will explain to you more how this works at my desk"

Now we press the pause button and look back:

Note that the banker says 8.75% for 5 years,

so for simplicity and layman sake, we do a an average calculation and it will work out to be an approximately 1.75% only per annum.

Various points to note for Structured Deposit (SD)

1. Essentially it contains a deposit and an investment product, where Returns is dependent on the performance of some underlying financial instrument. Typical financial instruments linked may include market indices, equities, interest rates, fixed-income instruments, foreign exchange or even combinations.
   
2. The Client's principal amount will ONLY be repaid in full:
   (i) At maturity; or
   (ii) If bank redeems it before maturity. This will apply only if your structured deposit includes an option that enables the bank to redeem or "call" the deposit before the maturity date for reasons specified in the terms and conditions of your contract.

• What this relates to is that the bank has full control of the maturity or tenor period ultimately where you know you may be investing this additional funds with unpreparedness and planning of usage of it.
• You may risk the potential of losing the principal amount should emergency happens and you need to touch this invested cash before the plan matures.

Furthermore, I will like to highlight, where Fixed Deposit (Timed Deposit) is covered under protection under the Deposit Insurance Scheme, Structured Deposit (SD) are not covered . For more information on the Deposit Insurance Scheme, which is administered by the Singapore Deposit Insurance Corporation, please visit www.sdic.org.sg.





Now, I will be  touching on this " growing monster " termed " Inflation ".

To better help you understand inflation:

Your cup of coffee at Kopitiam (coffee house) shrink in size with each growing year. Be it you like it a not.
there are some who prefers drinking from smaller cups b'cos it looks more Requisite and Cute☃

Newspaper reports indicate that our inflation rate currently stands at:

Inflation Rate in 2011 - Extracted on CNA

So what ya? Well, well reality kicks in,
Real life scenario of someone on my Facebook complaining about this causally.
::

You can Add Me in Facebook too.

Now, as i know you are smart (b'cos I only attract smart readers), a quick comparison with the typical average interest rates for Fixed Deposit Rates and Structured Deposit Rates in the market VS the Inflation Rate rising in Singapore nowadays, I will leave you to make a personal decision what to do with your current money/savings. 


I have some people asking me:

"Now Patrick, tell me,  you told us so much about the Deposits, do you still encourage us to put into it?

I will say:

"Overall, the fact our Bank is doing a business for these products, there should be a need in the market.

Most importantly, I have to know what are your planning for the money, your objectives, your time." Fixed Deposits in my opinion is a fantastic product, because it is flexible, your principal is guaranteed by the bank, and it earns you relatively higher interest than the typical Savings account. This can be an excellent vehicle before the transition to enter another much "Savings / Investment" Vehicle.

What is Much worse is when you choose to do Nothing at all."

If you are interested to speak to me more where we can exchange ideas or for networking with other friends in this field, you may click on the Contact Me. We will keep in touch from there.

In near future, you may also see me blogging in my other posts on other alternatives that you can explore too.

Important Disclaimer - Please note:

The author is not liable for any of the promotional rates and fixed deposit tenor in connection with this promotion stated in this post. Please refer to the individual Bank's Terms and Conditions Governing Accounts and Services and the Bank's Additional Terms and Conditions Governing Accounts and Services which are applicable

The above is for information purposes only and does not constitute an offer, an invitation to offer, a solicitation or a recommendation to enter into or conclude any transaction. You may wish to seek advice from a licensed or an exempt financial adviser before making a commitment to purchase before carefully considering whether any financial instrument is suitable for you.