dbs cuts rates for $ deposits

as expected, in the current extreme low interest rate environment, dbs has announced it would cut interest rates for sing dollar deposit accounts with effect from october 14, 2011.

dbs, asia's safest bank, and south east asia's largest lender, has cut the interest rate for the first S$10,000 deposited in its "DBS Autosave (Personal)" account to 0.05 percent from 0.10 percent previously.

mr song seng wun, an economist at cimb research said:

"Increasing risk aversion have led people to keep money in the bank rather than putting it to work, like investing in stock markets or buying properties,"

and on the flip side, banks have been more careful of who to lend to which may see lending activity easing off as well.

my comments:

with the current market turmoil, there is perhaps very few other almost risk free alternatives to leaving monies in the financial institutions which offers a lower but guaranteed returns, augmented by the deposit insurance scheme*.

*In the event a Deposit Insurance Scheme member bank or finance company fails, all of your eligible accounts with that member are aggregated and insured up to S$50,000. Trust and client accounts held by non-bank depositors are insured up to $50,000 per account.

one other alternative worth consideration is endowment products provided by our insurance companies. but of course, do not just sign off any endowment product recommended by your financial adviser.

is there any endowment product worthy of mention?

on this, there is one significant benchmark which i apply when advising my clients to put their monies into any endowment product which is the guaranteed cash value on maturity must exceed the total premiums that has been paid over the term of the policy.

for example, if the total premiums paid = $1, then the guaranteed cash value on maturity must be >$1 and the higher the margin, the better the guaranteed returns from the policy. the bonus (literally) are both the reversionary bonuses that has been declared and the terminal bonus added to the policy on maturity.

if this benchmark is not met, then the endowment product in question will not be in my radar screen.

with inflation expected to be higher than normal, running at a current clip of more than 5%*, therefore, putting all your monies into savings and fixed deposits will net a real negative return in terms of your purchasing power in goods and services. but in chasing yields, do be reminded of the inherent risks of any potential return offered which is usually not guaranteed.

*The inflation rate in Singapore was last reported at 5.7 percent in August of 2011. From 1962 until 2010, the average inflation rate in Singapore was 2.73 percent reaching an historical high of 34.00 percent in March of 1974 and a record low of -3.10 percent in September of 1976.

after all, it is your hard earned monies and u deserve to be rewarded for putting your capital to work.