Wednesday, July 1, 2015

2.82% 6-month Fixed Deposit?!

Similar to the POSB 10.68% Fixed Deposit, I have found another interesting, but less tasty lobang.

CIMB's new Q3 promotion for opening an account with them is up and THIS NEWS IS FRESH OUT OF THE BAKERY. So fresh that even if you go to the CIMB website right now, they haven't even taken down the old promotion and put up the new promotion yet.

How do I know about this? Secret, hehe.

With this new promotion, you have to be a new customer putting in fresh funds, and you would be eligible to a cash gift if that amount remains in your account for 6 months. Technically, it isn't a fixed deposit with interest, it is "cash savings without withdrawal and a cash gift", but they are pretty much the same thing.

Deposit $1,000 and maintain for 6 months, receive $10 cash gift.
Deposit $5,000 and maintain for 6 months, receive $25 cash gift.
Deposit $10,000 and maintain for 6 months, receive $50 cash gift.
Deposit $25,000 and maintain for 6 months, receive $75 cash gift.

There must be something up with this "cash gift" thing. It's either a regulation loophole or a different way of recognizing this expense. It's probably to recognize it under expenses and acquisition costs rather than interest expense. A bigger interest expense will shrink their NIM which is a key KPI when looking at banks. Amirite? I should totally be a financial engineer.

Anyway, this new promotion is better than the previous promotion to me. I much rather receive cold hard cash than vouchers.

So what are the "annualized" returns of this pseudo-fixed deposit so that we can do a comparison with other banks and products? Well, let's calculate it together!

I plan to do a fixed monthly transfer of $100 so that my balance is eligible for the higher 0.8% return. However, those incremental increases would not be counted in my calculation, but it is important to note because if you do not do this, your balance would only earn the base 0.5% and the below figures would be lower.

$1000 with annualized 0.8% interest is equivalent to 0.0664% interest per month, but compounded and in total over the 6 months would be 0.3992%. This is legit and the math works out because intuitively you know that half of 0.8% is 0.4% and because of compounding, the figure would be slightly less.

With $1000 deposited, I would receive $3.99 in interest and $10 as a cash gift at the end of 6 months. This is a straight up return of 1.399% in 6 months. If you annualize this amount, you would get 2.82% annualized returns!

One thing that you would notice is that the highest returns based on amount deposit is with $1,000, since the cash gift for the 3 other amounts are proportional to the amount deposited. The $1,000 deposit has the highest value (is value the most important thing?), even though it is the lowest amount. I guess the retail banking KPI is customer base growth, not assets per customer, haha.

So if you did the same exercise above but with any of the other amounts ($5k, $10k, $25k), you will realize that your annualized returns is 1.806%, which is still pretty darn good.

Any comparable fixed deposits out there with only a $5,000 minimum deposit that can give better than 1.806% over 6 months? I don't think so.

Thanks CIMB, you just got yourself a new customer!

5 comments:

  1. I made it a rule to keep only a bare minimum in Fixed Deposits.
    No matter, what great deal you get, in the current global low interest environment all of them are destroying money in terms of real interest rates when the 'real inflation rate' is greater 3% p.a.
    Money saved for retirement (10+ years) should never be wasted in Fixed Deposits, but put into active use in the stock market via broad based Index Funds (ETFs). This even applies when you are 'not interested' in the stock market!
    Stocks, although volatile in the short-term, are still the average person's best bet for long-term real capital appreciation. That is a 'know-brainer'.
    Just my five cents worth of experience.

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    1. Hi Tacomob,

      Yeah I agree, but this is for cash that I need to hold because I have a planned future expense coming soon. Because of that, I can't afford to risk any of it, so I might as well stick it in the best fixed deposit I can until I finally spend it.

      If it was for retirement or long-term, I would definitely be putting it somewhere else!

      Delete
  2. This comment has been removed by the author.

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  3. Cant seem to see this promo on the cimb website?

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    1. Hi Anon,

      Yeah that's strange. I visited their website and I can't find info on that either.

      When I was enquiring about another promotion, they offered me this one instead to seal the deal. However, the lady did mention that this is a "road show" promotion. Perhaps they are only offering it if you ask?

      Delete

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