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8.88% FD Interest! – This is how your parents came home from a bank with an unexpected investment.

My more financially savvy friends told me that among the stuff that really messed them off the most, it is when their parents go to their local bank branches.

My friends have a lot more control over their finances.

But they cannot just upload their better understanding of financial products and the financial world into their parent’s (siblings & relatives as well!) brains.

When their parents go into a bank to carry out some simple banking needs, they would come home with an endowment plan, structured product or a few unit-trust funds.

I have been proposition products in this way in the past, most recently 2 months ago at a UOB bank branch.

The danger about this to parents is that:

  1. These are not simple no-risk financial assets. They carry a certain level of risk. Parent’s risk expectation may be wildly different from what is communicated
  2. Not much needs analysis was usually carried out. The selling of products is based on how much spare savings the prospect has. There is no comprehensive evaluation of the prospect’s financial situation and what are his or her immediate and longer-term financial needs.
  3. Some of their parents needed retirement income instead of something that will force them to save.

Once their parents committed to the policy or fund or structured product, early surrender of these policies would have caused capital loss (unless your parents decide to cancel the policy during the free-look 14-day period).

A friend of mine was at Bedok Central yesterday morning and saw something that left him pretty disgusted.

He was outside the POSB Bank and observed that the bank have engaged someone to set up a booth where free coconut water was given out.

You can watch a snippet of the scene he observed here:

Do you want a fixed deposit that yields up to 8.88% interest?

A female emcee was on the mic repeatedly informing passersby of a great deal that is only available at the POSB Bank.

You can clearly hear in English “Over here at POSB Bank, we have fixed deposits with interest rates of up to 8.88%“.

A fixed deposit that gives you an interest of 8.88% is VERY appealing to anyone (including me). This is especially in the low-yield environment we are in.

Let’s just say that one of the reasons you may have come to read this post may be that you do not wish to miss out on some extremely high interest fixed deposit as well!

But in our current investment climate, it is very hard to get such a high 8.88% interest without taking some form of risks.

Considered this:

  1. If you look at the dividend yield of blue-chip dividend stocks and REITs in Singapore, only a minority of these risky stocks have yields in excess of 8.88%
  2. My list of safe, short term savings options may be a little outdated, but their interest rates have been less than 3%.
  3. The US or Global High Yield Bond Yields around 5%

If investments with risks do not yield 8.88%, how do you find safe fixed deposits that yield 8.88%?

The lady emcee clearly said in both English and Chinese the “interest rate” is 8.88% and not dividend yield or returns.

I did a search, and I could not find anywhere on DBS or POSB website that has a fixed deposit that yields 8.88%.

It is likely this is not a simple product such as a super low risk to no risk fixed deposit. If it is, they should let me know. I will help them market it as well.

Update: Some of my readers have let me know that they encountered the same thing in POSB branches at Yew Tee, AMK.

On further probing, the product is described as a regular premium savings plans. So this is a form of insurance endowment plan. Still, not much is known how to get 8.88%.

It is likely a combination of DBS Multiplier and doing a few different things. Will update more if I know more.

And this is what disgusts my friend.

How Ethical is This Way of Lead Generation?

Bedok is a matured estate.

Majority of those who bank at physical branches are the folks who are more comfortable banking in brick and mortar and likely less trusting or savvy with online banking.

They tend to be the older folks.

They put out coconut water outside the bank branch to attract folks to queue and the relationship managers would station close by to ask them questions. The relationship became transactional, as you would reciprocate to listen to them since you are going to consume their coconut water.

Then after this, they decide to sit down with this RM to hear more about what he or she has to say. The RM can be rather persuasive.

Aside from reciprocating the goodwill shown to them for providing the water, the biggest problem for many people is that they are really bad at saying no and walking away.

The RM will just go on and on and you will eventually fall into the mode where you will think, “Aiya just buy la, this product don’t sound too bad.”

It is quite disappointing to me that they stoop so low as to keep drumming that “fixed deposit interest rate of up to 8.88%” on the loudspeaker over and over again.

Policy-wise, they would not have done anything wrong because as long as they explain the risk of the product before the consumer signs and purchase the product, they are compliant.

You can understand why some of my friends would rather accompany their parents to the bank branches.

To be honest, I expected this kind of practice from insurance companies. We have seen some insurance agents use high returns (without telling them what are the products) to attract leads to them, and that reflects their overall character.

But this is POSB we are talking about.

The older folks trust them based on the brand name that they have built up.


To end this, let me just say that… not all financial products sold are not fundamentally sound. In this blog, I have frequently profiled endowment plans, the range of returns you could possibly get from endowments. At Providend, unit trusts are the recommended investment instruments.

There is a lack of more comprehensive planning.

Endowments lock up your money for a certain durations. There can be short term volatility in the equity unit trust such that when a person needs the money, the value then was inadequate for their needs.

A lot of this can be better planned if holistic planning is carried out.

But if these fixed deposits are truly no-risk deposits, then you do not need so much planning.

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E

Tuesday 4th of February 2020

The 8.88% is true. Effective rate is 2.22% as the fixed deposit is only for a 3-month period. The only catch is that this is a purchase with purchase product. You have to do a plan with the bank & Manulife then you’ll be eligible for the promotion. The plans are not all bad. Some carry low risks and are even capital protected. Please update your article.

Joo T.

Monday 3rd of February 2020

Indeed so true. There are many ways to earn money, but I like to urge the banks to let go the senior citizens. My mum is a frequent target, and she is totally uneducated. She speaks Hokkien and the RM wouldn't even leave her alone. Luckily, my mum listens to me well and she will ignore such hard sellings. But some of my relatives were not lucky enough.

Kyith

Monday 3rd of February 2020

HI Joo T, my friend gave his parents specific instructions. They still came back with a policy.

Raymond

Sunday 2nd of February 2020

The Manulife endowment product actually is quite decent. IRR 3.99% over 20 years based on the higher projections after including the cash gift they are giving out. On top of that, you get to enjoy 8.88% FD rate for 3 months, with a deposit cap which I can't remember how much.

Joshosaurus Rex

Sunday 2nd of February 2020

I have had experience with this personally, at the start of last year, at POSB Holland Drive. The 8.88% interest rate is true, just that it is only for 3 months, not P.A. So customers are effectively getting on 2.22%. And this is valid exclusively for sign ups with endowment products, back then it was with Manulife. Once you sign up for these plans, you are entitled to open this "special" FD account. Payouts for these endowment plans are pretty shitty, and comes with the usual conditions. Don't fall prey to these people.

Joshosaurus Rex

Sunday 2nd of February 2020

I was one of the few who questioned them endlessly, and I drew up an Excel spreadsheet detailing their proposed interest rates. Until they were quite fed up with me for not only not being interested in their product, but for holding up the line. They really target quite a lot of people.

David

Sunday 2nd of February 2020

Hi Kyith,

I suspect it is one of two possibilities:

1. You have to buy an insurance savings plan from the bank, and maybe they will give ANNUALIZED bonus interest of 8.88% for 1-2 months only. 2. It might not be annualized 8.88% interest, but rather 8.88% total gained interest after 3 to 5 years.

Either way, I agree that it is unethical.

Jason

Sunday 2nd of February 2020

My mom and aunt also recently kenna from OCBC....end up 25k is only giving 1.5% int pa and the 12 gives 8.88% .

I'm at lost for words because even astrea v is paying more with capital gains.

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