Advise needed - Callable Range Accrual Structured Deposit

[shau61]

I was approached by a Bank Manager to invest in the above for 5 years. If the SOR interest rate is less than 1%, I will get >3% per annum Not sure good or not. Anyone heard of the above Product. Please advise. Terima kasih.

 

[highsulphur]

I was approached by a Bank Manager to invest in the above for 5 years. If the Sibor interest rate is less than 1%, I will get >3% per annum Not sure good or not. Anyone heard of the above Product. Please advise. Terima kasih.

What do you get if interest is higher than 1?

 

[icicic]

Any more details? Best if have termsheet

 

[shau61]

What do you get if interest is higher than 1?

Higher than 1% no interest. Principal protected.

 

[Shiny Things]

I was approached by a Bank Manager to invest in the above for 5 years. If the SOR interest rate is less than 1%, I will get >3% per annum Not sure good or not. Anyone heard of the above Product. Please advise. Terima kasih.

No, don't do this.

Structured deposits are always and everywhere a bad idea.

First thing: when you do this structured deposit, you're trading an exotic interest rate option against the bank's rates trading desk. Do you honestly think you'll know more than the rates traders who get paid six figures to know what rates are doing?

Second thing: you won't see it, but there'll be a huge margin embedded in there somewhere. I'd guess that the "real" rate you should get would be something like 4% or 5%; the difference goes straight into the bank's pocket.

 

[Keverus]

post pic of term sheet?

which bank?

 

[highsulphur]

Just do the OCBC promo and get the 3.05%...

 

[shau61]

Just do the OCBC promo and get the 3.05%...

Will be doing that but have some extra cash also.

 

[shau61]

No, don't do this.

Structured deposits are always and everywhere a bad idea.

First thing: when you do this structured deposit, you're trading an exotic interest rate option against the bank's rates trading desk. Do you honestly think you'll know more than the rates traders who get paid six figures to know what rates are doing?

Second thing: you won't see it, but there'll be a huge margin embedded in there somewhere. I'd guess that the "real" rate you should get would be something like 4% or 5%; the difference goes straight into the bank's pocket.

Sorry, I don't understand. If 4% or 5%, it will be better than the 3% quoted

 

[Shiny Things]

Sorry, I don't understand. If 4% or 5%, it will be better than the 3% quoted

No, what I'm saying is you won't get the better rate. When you do one of these structured deposits, the bank underpays you and pockets the difference. Don't do them.

 

[shau61]

No, what I'm saying is you won't get the better rate. When you do one of these structured deposits, the bank underpays you and pockets the difference. Don't do them.

Thanks for advise.

 

[Xmen2]

show us the term sheet, so that pple here can comment ...

if it is possible to negotiate, go for 2 years tenor, 1.5% upper range, and receive interest every 3-month.

 

[Shiny Things]

I was approached by a Bank Manager to invest in the above for 5 years. If the SOR interest rate is less than 1%, I will get >3% per annum Not sure good or not. Anyone heard of the above Product. Please advise. Terima kasih.

Oh, I missed another bit - it's a "callable" structured deposit.

What that means is that if it looks like you might get the 3% payout for a long time, they'll call the deposit - they'll end it early - and you won't get that phat yield any more. But if rates go up, they won't end it early, and you'll be locked into a zero-yield deposit for five years.

Do you understand why that's a bad deal?

 

[shau61]

show us the term sheet, so that pple here can comment ...

if it is possible to negotiate, go for 2 years tenor, 1.5% upper range, and receive interest every 3-month.

Verbally I was told will get 3.75% if
1st, 2nd year - SOR <1%
3rd, 4th year - SOR <1.2%
5th year - SOR <1.4%

Is that a term sheet?

Ya, 5 years too long.

 

[shau61]

Oh, I missed another bit - it's a "callable" structured deposit.

What that means is that if it looks like you might get the 3% payout for a long time, they'll call the deposit - they'll end it early - and you won't get that phat yield any more. But if rates go up, they won't end it early, and you'll be locked into a zero-yield deposit for five years.

Do you understand why that's a bad deal?

I am also hesitating, 5 years too long...

 

[Xmen2]

Verbally I was told will get 3.75% if
1st, 2nd year - SOR <1%
3rd, 4th year - SOR <1.2%
5th year - SOR <1.4%

Is that a term sheet?

Ya, 5 years too long.

that's not a complete term sheet, you need to know more details in order to make a decision, e.g. how interests are accrued.

my 2 cents view is that banks will always make money out of consumer, it is just a matter of how much banks make ... as a consumer, given the limits choice of investment products, my decision will be based on which investments will give me higher return and within my risk appetite ... in this respect, range accrual products are better than say dual currency deposits in terms of risk, and better than saving account in terms of return ... it is an investment worth considering ... however as the gurus always say, only buy things that you understand, so you need to know the products well before you invest.

and yes, personally i also think 5-year is too long an investment horizon for range accrual products.

 

[-Jian-]

Minimum investment amount is 5K right? If you think the banker is making sense think diversification, put your cash into other forms of investment.

Im not a believer of SD as well, however the upside of SD is capital guranteed upon maturity, for your case max is 5 years.

 

[shau61]

that's not a complete term sheet, you need to know more details in order to make a decision, e.g. how interests are accrued.

my 2 cents view is that banks will always make money out of consumer, it is just a matter of how much banks make ... as a consumer, given the limits choice of investment products, my decision will be based on which investments will give me higher return and within my risk appetite ... in this respect, range accrual products are better than say dual currency deposits in terms of risk, and better than saving account in terms of return ... it is an investment worth considering ... however as the gurus always say, only buy things that you understand, so you need to know the products well before you invest.

and yes, personally i also think 5-year is too long an investment horizon for range accrual products.

Minimum investment amount is 5K right? If you think the banker is making sense think diversification, put your cash into other forms of investment.

Im not a believer of SD as well, however the upside of SD is capital guranteed upon maturity, for your case max is 5 years.

Thanks for all the advise, I will not go ahead with the investment.