Structured Deposits

[antvest]

You mean SGS, AAA rated bonds from the SG government are less safe than DBS/UOB/OCBC?

You can buy SGS (including SSBs) using the ATM or internet banking (with a CPD account). You don't need to know much about bonds to buy sovereign bonds.

Thanks for the suggestion. I didn't say those bonds you mentioned are less safe than bank's products.

In fact, I am considering them right now.

After some consideration, at the relatively low interest rates the bank's structured deposits are offering, I find them to make little sense.

 

[Shiny Things]

OCBC has a structured deposit now that is not only capital guaranteed but also interest guaranteed. Is this recommended?

So here's the thing: they're probably telling the truth about the guarantee, but that doesn't mean it's a good investment.

If you're talking about the offer that's going around right now - the "12.45% after 6 years" offer—it's really not that great. The real interest rate is 2.1% per annum for six years, which is only about 0.35% more than you'd get from an equivalent Singapore govvy bond. But the SGS has no credit risk, and it's a lot more liquid (so it's easier to cash in if you need the money).

Hi antvest,

We came across your post and though to offer some assistance.

Could you PM us the branch you visited and your contact number so that we can make arrangements for our consultants to call and advise?

^WX

Hi guys! So here's a question for you. 2.1% per annum is only about 0.35% better than the yield on a 6-year SGS. I'm digging up 5yr OCBC CDS now, but I'm going to bet it's a lot more than 35bps.

Why would I buy your structured note, with a six-year lockup, and taking six years of OCBC's credit risk, when I could buy a Singapore govvy bond that's a lot more liquid, easier to cash in if I need the money, and only has a slightly lower interest rate? This seems like a pretty mediocre rate.

 

[Asphodeli]

anyone here gets the general feeling that the banks are intentionally keeping the SIBOR rates low here in Singapore? IMHO they should be offering at least 50 bps above SIBOR for fixed-deposit rates.

#ConspiracyTheory

 

[sgdividends]

anyone here gets the general feeling that the banks are intentionally keeping the SIBOR rates low here in Singapore? IMHO they should be offering at least 50 bps above SIBOR for fixed-deposit rates.

#ConspiracyTheory

Don't know ...But I guess it's bad for them.
Raising sibor will be bad for home owners

 

[antvest]

I think the banks are playing it safe. The economy is fragile now. The geopolitical situation globally is also uncertain. That's why they won't increase the interest rates for FD. Just my guess.

As for SIBOR, they want to attract more home owners to take up loans. The property market in SG is not doing well, with all the oversupply and despite all those overhyped reports we read about people buying up new launches. With the restrictions in borrowing, the loans are no longer as robust as back in those "good years" of the past.

Singapore residential properties are no longer a good form of investment to many people. And many get shut out because they can no longer borrow from the banks.

 

[antvest]

So here's the thing: they're probably telling the truth about the guarantee, but that doesn't mean it's a good investment.

If you're talking about the offer that's going around right now - the "12.45% after 6 years" offer—it's really not that great. The real interest rate is 2.1% per annum for six years, which is only about 0.35% more than you'd get from an equivalent Singapore govvy bond. But the SGS has no credit risk, and it's a lot more liquid (so it's easier to cash in if you need the money).



Hi guys! So here's a question for you. 2.1% per annum is only about 0.35% better than the yield on a 6-year SGS. I'm digging up 5yr OCBC CDS now, but I'm going to bet it's a lot more than 35bps.

Why would I buy your structured note, with a six-year lockup, and taking six years of OCBC's credit risk, when I could buy a Singapore govvy bond that's a lot more liquid, easier to cash in if I need the money, and only has a slightly lower interest rate? This seems like a pretty mediocre rate.

I still think there are some attractions of the structured deposit (SD) over SG govt bonds.

The major banks in SG are strong. I will not be worried about credit risk at all. If one is worried about that, then I will say all other forms of investments are a lot riskier. If any of the major banks were to fall, SG would be almost as good as dead. And many other banks in the world would almost surely collapse also.

So the only difference you should be comparing is the tenure of the investment and interest given.

For some people, they know for sure they don't need that sum of money for those 5 or 6 years. So why not earn higher interests? 0.35% difference is still money.

If you put that same sum in a govt bond, your final returns will be lower. For the SSB, the tenure is 10 years. Yes, it's "liquid" but you are facing an extra 4 years compared to the SD to enjoy almost similar interest rates.

Personally, I don't understand why people want to put money in FD or SD and then think "I better have a backup plan should I need to withdraw the money." If you are not sure whether you need the money, then my take is better don't put money in there at all. It doesn't make sense to lock up your money and yet don't have the financial strength to weather through the whole tenure.

 

[sgdividends]

Actually just a side note..Even though property prices are high, I got this feeling overall the cost of owning a private property may not be much much higher than because pte owners have been enjoying super low rates for about 7-8 years already..That's a lot of interest savings compared to the high interest rates in the past

I feel those who took HDB loan got a bad deal.

But the above is looking in the rear view mirror

 

[OCBC Bank]

So here's the thing: they're probably telling the truth about the guarantee, but that doesn't mean it's a good investment.

If you're talking about the offer that's going around right now - the "12.45% after 6 years" offer—it's really not that great. The real interest rate is 2.1% per annum for six years, which is only about 0.35% more than you'd get from an equivalent Singapore govvy bond. But the SGS has no credit risk, and it's a lot more liquid (so it's easier to cash in if you need the money).



Hi guys! So here's a question for you. 2.1% per annum is only about 0.35% better than the yield on a 6-year SGS. I'm digging up 5yr OCBC CDS now, but I'm going to bet it's a lot more than 35bps.

Why would I buy your structured note, with a six-year lockup, and taking six years of OCBC's credit risk, when I could buy a Singapore govvy bond that's a lot more liquid, easier to cash in if I need the money, and only has a slightly lower interest rate? This seems like a pretty mediocre rate.

Hi Shiny Things,

Thank you for your feedback.

The returns from one investment varies from another investment due to various factors. In general, the more risk that an investor undertakes, the greater the potential rewards.

We have a process to assess our customer's financial situations, investment goals, risk profile etc. before recommending suitable investment products to our customers.

Generally, Structured Deposits are suitable for customers who prefer a low risk investment and at the same time do not intend to use their invested funds for the stated tenor, in order to earn potentially better interests than traditional time deposits.

Please do note that our rates for Structured Deposits do change from time to time. Please visit any of our branches or speak to your Relationship Manager to find out more about the latest rates or to find out more about our other investment products.

^WX

 

[shareholder]

anyone here gets the general feeling that the banks are intentionally keeping the SIBOR rates low here in Singapore? IMHO they should be offering at least 50 bps above SIBOR for fixed-deposit rates.

#ConspiracyTheory

Shareholders also need to eat, so squeeze the savers and pass some to shareholders lah.

 

[unhinged_loon]

anyone here gets the general feeling that the banks are intentionally keeping the SIBOR rates low here in Singapore? IMHO they should be offering at least 50 bps above SIBOR for fixed-deposit rates.

#ConspiracyTheory

Very simple. They don't need your deposits.

 

[unhinged_loon]

I still think there are some attractions of the structured deposit (SD) over SG govt bonds.

The major banks in SG are strong. I will not be worried about credit risk at all. If one is worried about that, then I will say all other forms of investments are a lot riskier. If any of the major banks were to fall, SG would be almost as good as dead. And many other banks in the world would almost surely collapse also.

All SGS (SSB, SGS bills, SGS bonds) are issued by MAS. They are backed by the SGD money printing press. The SGS essentially set the risk free interest rate in Singapore. There can be no other safer investing instrument in Singapore. What you are saying is like saying that you trust Wells Fargo more than you trust the Federal Reserve.

So the only difference you should be comparing is the tenure of the investment and interest given.

For some people, they know for sure they don't need that sum of money for those 5 or 6 years. So why not earn higher interests? 0.35% difference is still money.

If you put that same sum in a govt bond, your final returns will be lower. For the SSB, the tenure is 10 years. Yes, it's "liquid" but you are facing an extra 4 years compared to the SD to enjoy almost similar interest rates.

Shiny is talking about SGS bonds, not SSB.

Another thing, you cannot compare interest rates at different credit ratings. You may not care about the difference between AAA and AA-, but the bond market does.

 

[yiron]

I still think there are some attractions of the structured deposit (SD) over SG govt bonds.

The major banks in SG are strong. I will not be worried about credit risk at all. If one is worried about that, then I will say all other forms of investments are a lot riskier. If any of the major banks were to fall, SG would be almost as good as dead. And many other banks in the world would almost surely collapse also.

So the only difference you should be comparing is the tenure of the investment and interest given.

For some people, they know for sure they don't need that sum of money for those 5 or 6 years. So why not earn higher interests? 0.35% difference is still money.

If you put that same sum in a govt bond, your final returns will be lower. For the SSB, the tenure is 10 years. Yes, it's "liquid" but you are facing an extra 4 years compared to the SD to enjoy almost similar interest rates.

Personally, I don't understand why people want to put money in FD or SD and then think "I better have a backup plan should I need to withdraw the money." If you are not sure whether you need the money, then my take is better don't put money in there at all. It doesn't make sense to lock up your money and yet don't have the financial strength to weather through the whole tenure.

As strong as SG banks goes, they are NOT credit risk free. Notwithstanding the bank's guarantee, your investment could still go below face value if the bank runs into distress and has to go through debt restructuring to stay afloat. While it is highly likely that SG Govt will shore up the big 3 local banks at all costs, the focus will be protecting retail depositors rather than SD (ever wonder why SDIC does not cover SD?).

Anyway, the gist of what Shiny is saying is that on a risk adjusted basis (i.e. the risk you bear vs the returns you get), you are much worse off buying the SD vs buying SGS. A 0.35% spread is way insufficient to compensate for OCBC's credit risk (which as Shiny mentioned, is definitely higher than 35 bp) and the illiquidity risk of the product.

And that is not even considering whatever nefarious terms wrapped into the product. Thing is, SD is commonly used as a way of securitizing and offloading the bank's market risk - in other words, you are selling the bank protection, just at a much lower price than the bank would have paid to buy protection from the street.

 

[Shiny Things]

Very simple. They don't need your deposits.

Got it in one.

Think back to your Macroeconomics 101, and think of bank interest rates as the price of money - the price of loans between banks. If there's lots of supply, the price (the interest rate) will go down. Singapore banks are habitually flush with deposits, so interest rates are low.

Shiny is talking about SGS bonds, not SSB.

Another thing, you cannot compare interest rates at different credit ratings. You may not care about the difference between AAA and AA-, but the bond market does.

This is also right.

If OCBC went to the institutional bond market, and offered 6-year senior debt at 2.15%, they'd get laughed out of the room, because that interest rate is too low for a AA- bank borrower in SGD. 2.6-2.7% would be closer to the mark. Institutional investors know that; retail investors don't.

Basically our esteemed sponsors are extracting cheap funding from the retail market because regular investors don't know any better.

 

[antvest]

Thanks guys for the detailed explanation. I see a couple of academic terms being used but I feel the topic has been a tad over-analyzed.

The issue here is not about banks being credit free. Nothing is guaranteed, of course. It's all about probability of something bad happening. Much like how some feel Singapore is no longer an attractive place to buy properties for investments, while others still invest in them. One group thinks there is still potential growth but another feel the meagre or negative returns are not worth the initial capital to be pumped in.

Investing is a complex subject. If only we could trust a savvy and successful investor and replicate exactly what he has done. We can't, because our age, risk appetite, capital on hand and holding power are all different.

Much as one says the big banks here are not credit risk free (which I agree, just like there could be a war one day to flatten Singapore), SG government is not 100% risk free also. Nothing is. Again, it's a matter of probability of that happening.

Putting all academic analysis aside, someone who does NOT need the lump sum of cash for several years (illiquidity is not considered a risk here) and puts in the money in a SD at 2.1% p.a. interest, the final return will be higher than if he had invested in SGS.

I don't think the comparison about trusting Wells Fargo more than the Federal Reserve is fair or relevant here. It's more about your investment objectives. I'm not saying do not invest in SGS. One could practise diversification and allocate some funds into SD (or even FD) and some into SGS. To a savvy investor, he might even laugh off at all these because much as you want to argue how safe SGS is, he will tell you he knows much better way to get higher returns. As I mentioned, it's about individual investment objectives, risk appetite and knowledge on how to invest.

If we always do over detailed analysis of figures to determine whether we can invest in something (eg someone saying 0.35% interest is too low for OCBC's credit risk), then we may face paralysis and not do anything or take the safest but least return approach. In many stocks, if you had done a fundamental analysis of their earnings/losses, you will see that you cannot buy almost all of them. Yet I've seen how their prices have remained robust for more than a year and along the way, many have profited from investing in them instead of shunning them altogether. An investor has to weigh carefully the risks and possible returns.

In everything, there are risks involved. I feel it is better we decide if we can take that risk and what our investment objectives are.

 

[Asphodeli]

Thanks guys for the detailed explanation. I see a couple of academic terms being used but I feel the topic has been a tad over-analyzed.

The issue here is not about banks being credit free. Nothing is guaranteed, of course. It's all about probability of something bad happening. Much like how some feel Singapore is no longer an attractive place to buy properties for investments, while others still invest in them. One group thinks there is still potential growth but another feel the meagre or negative returns are not worth the initial capital to be pumped in.

Investing is a complex subject. If only we could trust a savvy and successful investor and replicate exactly what he has done. We can't, because our age, risk appetite, capital on hand and holding power are all different.

Much as one says the big banks here are not credit risk free (which I agree, just like there could be a war one day to flatten Singapore), SG government is not 100% risk free also. Nothing is. Again, it's a matter of probability of that happening.

Putting all academic analysis aside, someone who does NOT need the lump sum of cash for several years (illiquidity is not considered a risk here) and puts in the money in a SD at 2.1% p.a. interest, the final return will be higher than if he had invested in SGS.

I don't think the comparison about trusting Wells Fargo more than the Federal Reserve is fair or relevant here. It's more about your investment objectives. I'm not saying do not invest in SGS. One could practise diversification and allocate some funds into SD (or even FD) and some into SGS. To a savvy investor, he might even laugh off at all these because much as you want to argue how safe SGS is, he will tell you he knows much better way to get higher returns. As I mentioned, it's about individual investment objectives, risk appetite and knowledge on how to invest.

If we always do over detailed analysis of figures to determine whether we can invest in something (eg someone saying 0.35% interest is too low for OCBC's credit risk), then we may face paralysis and not do anything or take the safest but least return approach. In many stocks, if you had done a fundamental analysis of their earnings/losses, you will see that you cannot buy almost all of them. Yet I've seen how their prices have remained robust for more than a year and along the way, many have profited from investing in them instead of shunning them altogether. An investor has to weigh carefully the risks and possible returns.

In everything, there are risks involved. I feel it is better we decide if we can take that risk and what our investment objectives are.

You are preaching to the choir here. Most of the posters in this thread here are vested in stocks and bonds and avoid SD like the plague. Just FYI.

Sent from Sony E6533 using GAGT

 

[antvest]

You are preaching to the choir here. Most of the posters in this thread here are vested in stocks and bonds and avoid SD like the plague. Just FYI.

Sent from Sony E6533 using GAGT

Yes, I could infer that. I have no intention to preach but just replying to some of the earlier comments.

I appreciate all replies and think whoever comes to this forum can learn. I learn too by exchanging ideas and opinions, and respect any differences. Important thing is we don't put one another down even if we choose to disagree.

Like I said, investment is a complex subject and no one is right or wrong.

Anyway, my original question is really whether the interests given for the particular SD I was referring to is guaranteed. It is indeed the case. Personally, I still feel it's worth considering if it fits your investment objectives.

If there is one phrase to sum up about investments, it is simply "understanding the risk-return factor". All risks being considered and normalized, no one investment is more stupid compared to another. You just get different returns.

 

[BabyTurkey]

I think these new breed of capital-and-interest guaranteed SDs would appeal to layman investors who are looking for a low-risk and easy-to-understand product. They are more directly comparable to fixed deposits and SSB, offering slightly higher returns with correspondingly slightly higher risks.

Don't think they should be compared to SGS bonds, which are positively arcane to purchase for a novice investor.

 

[BBCWatcher]

Don't think they should be compared to SGS bonds, which are positively arcane to purchase for a novice investor.

I don't agree that Singapore Government Securities are arcane. At least not in comparison to the other financial matters that Singaporeans routinely face.

You can buy the government bonds (both types) through all bank channels. Branch, ATM, Web, mobile, and probably telephone. Structured deposits, no. They're too complicated for some channels.

 

[taylornotswift]

TELL YOUR OLD MOM AND DAD

Personal finance consultant introduced OCBC SD to my mom after her FD matured. The SD was introduced to mother as "SD is FD with higher yields due to long 6 year lock-in".

I had to grill the consultant to get truth. What the financial consultants do not tell you when they "introduced" their cheesepie 6 year Structured Deposit.

That they will collect and document your personal information in their system AFTER they made you sign and pen a number of paper documents: such as how much is your monthly income, what is your job, how much is your cpf, how much is your expense, how much your total wealth included those from other banks.

I was super close to yelling "ma-de" what has my personal asset to do with ocbc? You are not IRAS ok. Other institutions doing FD never collected such info. But the ocbc consultant said starting from now, all major banks will start collecting this info for FD. Chow Liar. He also said I cannot "anyhow put" a random figure for the SD because "cannot be you earn only $500 and you want take up a $50K SD?"


And it raised my spider sense. Because the SD is paid with cold hard cash. What has it to do with ocbc even if I earn $500 as long as I can throw out the full $50k cash to you? He then relented saying the bank needs to have assurance that people can withstand SD risks from their existing assets. So, if its really FD, what hell of risk was he talking about?

I squeeze hard and almost bang table to ask what the hell is the diff between a long tenure FD and a SD. He finally said SD is outside of scope of SDIC

="https://www.sdic.org.sg"

It means for normal FD, if ocbc suay suay kena collapse or funny funny mergers, sdic can help you chase back the money. But for SD, if anything happens sdic cannot help you chase back.


Nobody knows what will happen in 6 years time. What restructuring la, merger la, god knows if its another california fitness or oub.

Most of the people who are interested in FD are the senior citizens who will toot toot believe SD is FD. The penalty for early withdrawal is between 5% to 7%. The ocbc consultant said can reduce impact of penalty by taking smaller bundles. I.e 5 sets of $10k instead of 1 set of $50K. Penalty is the least of concerns compared to the littlest possibility that something will happen to the bank and government cannot help old parents chase money back.


Why are banks doing this kinda lousy sales tactics releasing only partial information to elderly? Most singaporean elderly save like hell and do not gamble. It is not right to keep silent about the SDIC and lie that SD is a form of FD.


="https://www.sdic.org.sg/SDIC/apps...browser/default/public/di_scope_of_coverage/"

How can you consultants sleep at night, withholding info, not telling customers the possible risks of what might happen within 6 years? Just because its not your money? Just because its other peoples mom and dad and not yours?

If you believe your bank will 100% stay strong after 6 years, then inform all customers the sdic portion of SD. If your sales manager tell you withholding information is ok and it is customers own fault for not doing homework first, then you better pray that idiot wont kena lightning strike for keeping mum about the possible 0.001% risk on fellow old singaporeans hard earned money.

Our old singaporean elderly would step in that bank for a FD is only to get peanut interests higher than savings. They are willing to listen to finance consultants also because these finance consultants are singaporean. You think old parents would be as trusting towards FT? Dont abuse that trust. Its sick to tip toe everywhere around fellow singaporeans.


="http://dollarsandsense.sg/3-myths-about-structured-deposits/"

 

[unhinged_loon]

...

tl;dr version:

Structured deposits are not longer tenure fixed deposits and not covered by SDIC.