Fixed Deposits Giving 1.88%? Beware the Fine Print

image: michael longmire

Singaporeans love fixed deposits because the product class offers something predictable, and higher than the usual savings rate. In fact, we know of many families and friends who hunt for the highest deposit rates.

Before one hurries down to the bank promising you the “highest” fixed deposit rates in the market, do spend some time reading the terms and conditions, as well as the fine print.

One bank in Singapore offered 1.88 percent per annum as interest rate, presumably the highest, based on headline numbers on various financial comparison websites. It states a minimum deposit quantum of $20,000, which was not an issue for a family member.

Once we head down to the bank, however, the bank officer explained that one needs to set aside $3,000 in the bank’s savings account, which earns a meager interest rate, while the balance of $20,000 will earn the 1.88%.

After some simple math, you realize that you are not getting the full interest payment of $376 on your $20,000. Put another way, you are only getting 1.63% on the entire S$20,000 being locked away.

While you say it is no big deal, you have potentially lost $50.40 with this bank, should another bank offer you a straight-forward headline rate of 1.88 percent. If you were happy with 1.63%, you might as well explore whether your existing bank offers such rates for fixed deposits, rather than go through the hassle of filling up new forms to open new banking accounts and/or fixed deposit accounts, just to lock away $20,000.

Of course, if you have planned bigger amounts for fixed deposits (say S$50,000), the effective rate on the quantum gets closer to 1.88%.

Takeaway

Before you rush to the nearest bank branch of the bank offering you attractive fixed deposit rates, try and read through the fine print on the bank’s website, or talk to a bank officer first. You may save yourself some time or “foregone” interest payment.

If you are keen on the calculations, drop us an email here: info at valuationschool dot com, to discuss more.

  • info@valuationschool.com
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