Tuesday, December 3, 2013

A Rate Tart

Taking a page out of the Monevator's blog, his recent post titled "Confessions of a Rate Tart", which has coincidentally inspired this post.

Basically, he has 26 bank accounts, and he moves his money around to wherever offers the best rate for his cash.

The phrase that really struck me the most is this "So everyone wants a piece of the pie, but you just give them the same old slice and keep it moving through the system".

Now that I think about it, it really makes a lot of sense to me. Banks are just vying for your crap cash and give you pathetic rates on it, and lend it out for way higher premiums. If you're the sucker here, why not at least try to sucker the most amount of money out of the system?

Let me give you a slice of what the real interest rates on savings accounts are right now. I'll be looking for the rates for accounts of $10,000 SGD.

HSBC 0.01%
DBS 0.05%
DBS 0.05%
SCB 0.10%
OCBC 0.20%
Maybank 0.43%
RHB 0.48%
CIMB 0.50%

(*just a reminder, but 2013 YTD core inflation is 1.6%, so yeah...)

OCBC does have a promo that you can get 1.18%, but you cannot make any withdrawals the whole year. So... it's a 1.18% fixed deposit, not a savings account. But, that said, no lock-in period.

Anyway, as you can see, I've shopped around and I've been looking at rates. It makes me feel like I'm a pretty girl, and all the boys are lining up to get a piece of this. And after looking at all them boys, I decided that the one that has the best to offer, is CIMB. I never knew it until I googled it, but it stands for Commerce International Merchant Bankers Berhad.

So what's at CIMB?

First, they have a savings account, it's called the CIMB StarSaver (Savings) Account. It's different from the current account in only 2 ways. You can't overdraw it, and the minimum deposit is only $1k, instead of $5k. That's it. The base interest rate is 0.5%. The sweetener is that if you regularly deposit money into the account, the interest becomes 0.8%.

Second, they have a fixed deposit scheme, which isn't really a fixed deposit scheme. There's a 5 year fixed deposit scheme, which allows you to withdraw every 6 months, but only with the interest that has been accrued for that time period. The same for a 1 year fixed deposit, but with the option to withdraw every month. Bloody hell, in what way is that a fixed deposit? I'm not complaining, but it just seems crazy to me. Here are my accurate calculations of the effective interest rates based on withdrawal period.



So, as you can see, regardless of whatever time frame, the minimum per annum effective interest is 0.55%, and goes up all the way to 1.57% if you hold the fixed deposit for the full 5 years. If your holding period is definitely more than 3 years, then the 5 year step-up plan is better, since the 3 year withdrawal rate is the same as reinvesting the 1 year amount as it expires over 3 years. However, just the fact that you can get risk-free 1% gives me the chills, in a good way.

Anyway, a Malaysian bank. Why a Malaysian bank?

Well, even though it is a Malaysian bank, it is still covered by the Deposit Insurance Scheme. That means, up to $50,000 SGD in insured if the bank flops out.

Next, as a Malaysian bank, they have a need for Singapore dollars because that is not their main currency. So, I figured that it is cheaper for them to con Singaporeans to give them Singapore dollars, slap on a marginally better interest rates than the local banks, and use the SGD for their own purposes. This saves them financing costs, spreads and risk that they will have to take if they are constantly converting in and out of Malaysian Ringgit. This is also the reason why I think that local banks gives such shitty interest on bank deposits.

So, here I am, fighting the system. I'm being a rate tart, and I don't think I have anything to be ashamed about. I'm just looking out for number 1, and whoever fits the bill, is getting my business.

I am planning on opening up just a simple savings account with the minimum deposit, so that the fixed deposit money can be transferred in and out. I am highly suspecting that the money will perpetually be in fixed deposits though, especially since that there is no penalty for early withdrawl. In fact, the interest rate earned on early withdrawals is even more than the base rate of the account.

However, if I do get a confirmation that local interbank transfers carry no charges, I would actually be quite happy to regularly save and transfer most of my excess cash into this account, either working in a fixed deposit, or just sitting pretty and getting 0.8% risk-free.

I shall see what CIMB says when they contact me.

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