Dual Currency Deposits: The trade off

Many people like their currency deposits for the high interest rates compare to the idiotic ones we can get in Singapore fixed deposits. However, the recent currency changes might have really adverse impact on these “safe” deposits.

Tan Kin Lian has this to say [horror story]:

This type of investment allows you to bet on currency movements. You stand the chance of a big loss when the currency moves against you. You only get a small return (in the form of a higher interest rate) when currency moves in your favour.

Recently, the AUD dropped by 30%. Those who were “long” in AUD lost 30%. But those who were “short” in AUD did not gain 30%. They only gain 1% or 2% in higher interest. The bank keeps the remainder of the profit.

I learned to my horror that unsophisticated investors were asked to invest in “leveraged” dual currency investments. The bank lends them 4 times of their investment, so that they can take 5 times of the risk. If the currency drops by 20%, their total investment isstrong wiped out/strong (i.e. 20% X 5 times).

The relationship manager of the bank who sold the leveraged DCI earned 5 times of the commission on this product. But, it wiped out the total savings of the investors./p pSomeone told me that her monther lost $500,000 on this type of investment. Another retiree told me that he lost $150,000 in 2 months, out of the invested sum of S200,000.

Do not invest in any of these products. Be careful about the advice of the relationship managers.

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Kyith

Kyith is the Owner and Sole Writer behind Investment Moats. Readers tune in to Investment Moats to learn and build stronger, firmer wealth foundations, how to have a Passive investment strategy, know more about investing in REITs and the nuts and bolts of Active Investing.

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Kyith worked as an IT operations engineer from 2004 to 2019. Currently, he works as a Senior Solutions Specialist in Insurance Start-up Havend. All opinions on Investment Moats are his own and does not represent the views of Providend.

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