Feature Articles: Investment - OCBC Wealth Management

Looking to beat low S$ deposit rates?

Singapore dollar time deposit rates are currently very low, at less than one per cent per annum for deposits below $50,000.

These rates are not enough to cover Singapore's inflation rate which was at a 25-year high of 6.5 per cent in February this year.

So leaving your money in a Singapore dollar fixed deposit may not be a wise thing to do because inflation could erode the value of your hard earned savings.

Investing in financial assets like stocks, bonds and unit trusts are commonly cited as options which investors can consider to get better returns on their savings.

But there is another option that is sometimes overlooked - foreign currency time deposits - which can offer higher interest rates than Singapore dollar fixed deposits. These deposits can also offer additional returns if the foreign currency appreciates against the Singapore dollar.

Aside from the allure of higher interest rates, foreign currency deposits will also appeal to those who have a use for foreign currencies either now or in the future. For example, for those who have children studying overseas or who plan to send their children to an overseas university, it may make sense for them to set aside some of their savings in foreign currency deposits. This will allow them to hedge against the risk of currency appreciation.

Higher interest rates

The table below provides a comparison of Singapore dollar time deposit rates with foreign currency time deposit rates.

Take the Euro as an example.

Time deposit rates for the Euro are around 4 per cent per annum. The rates vary depending on the tenor of the deposit and the amount deposited. For longer tenors and larger amounts, the rates are higher and vice-versa. Nevertheless, a return of around 4 per cent per annum is attractive when compared with Singapore dollar time deposit rates.

Note: Rates quoted are on per annum basis and are subject to change without notice. Special rates may be quoted for larger amounts for Foreign Currency Time Deposits. * For amounts below $50,000 for all currencies except S$20,000 to S$50,000.

Potential currency kicker

If you had placed your money in a Euro dollar time deposit say one year ago, you would have enjoyed currency gains as well.

The Euro appreciated by nearly 5 per cent against the Singapore dollar over the 12-month period up to 14 April 2008 according to data from Factiva.

The Euro has enjoyed strong demand because the European Central Bank has kept its interest rates stead despite moves by other central banks to cut rates in recent months. Also, some central banks have indicated that they plan to diversify their currency holdings, reducing their exposure to the U.S. dollar and increasing their exposure to the Euro.

Attractive total returns

Based on the example above, if you had placed less than $50,000 into a 12-month Euro time deposit, you would have received an attractive interest rate on your deposit and enjoyed currency gains as well.

In contrast, if you had placed the same amount of money in a Singapore dollar time deposit of the same tenor, the comparable return would have been significantly lower.

Other foreign currencies which offer significantly higher time deposit rates than Singapore dollar time deposits include the Australian dollar, the New Zealand dollar and the British Pound.

Be mindful of the risk

Before you decide to put your money into a foreign currency time deposit, be mindful of the risks involved.

For example, there is a chance that the foreign currency you have placed your deposits into, may depreciate against the Singapore dollar. If this happens it could result in a currency loss at the end of the deposit's tenor.

Foreign currencies also tend to be fairly volatile. So make sure that you have the appetite to stomach the volatility before you place your money into a foreign currency time deposit.

Important Information

The information, opinions and statements contained in these materials are intended for general circulation and/or discussion purposes only. They do not take into account the specific investment objectives, financial situation or particular needs of any particular person. Without prejudice to the generality of the foregoing, please seek advice from a financial adviser regarding the suitability of any investment product taking into account your specific investment objectives, financial situation or particular needs before you make a commitment to purchase the investment product. In the event that you choose not to seek advice from a financial adviser, you should consider whether the product in question is suitable for you. This does not constitute an offer or solicitation to buy or sell or subscribe for any security or financial instrument or to enter into a transaction or to participate in any particular trading or investment strategy.

No representation or warranty whatsoever (including without limitation any representation or warranty as to accuracy, usefulness, adequacy, timeliness or completeness) in respect of any information (including without limitation any statements, figures, opinion, view or estimate) provided herein is given by OCBC Bank and it should not be relied upon as such. OCBC Bank does not undertake an obligation to update the information or to correct any inaccuracy that may become apparent at a later time. All information presented is subject to change without notice. OCBC Bank shall not be responsible or liable for any loss or damage whatsoever arising directly or indirectly howsoever in connection with or as a result of any person acting on any information provided herein.

The information provided herein may contain projections or other forward looking statements regarding future events or future performance of countries, assets, markets or companies. Actual events or results may differ materially. Past performance figures are not necessarily indicative of future or likely performance. Any reference to any specific company, financial product or asset class in whatever way is used for illustrative purposes only and does not constitute a recommendation on the same.

This material does not take into consideration the tax implications of the income earned as the tax position of each person is different. You are advised to seek independent tax advice on your personal tax position arising from placing the deposit mentioned.

Foreign currency investments are subject to exchange rate fluctuation, which may provide opportunities and risks. Exchange controls may be applicable from time to time to certain foreign currencies. You should therefore determine whether any foreign currency investment is suitable for you in the light of your investment objectives, financial means and risk profile. Any pre-termination costs will be deducted from your deposit.

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