Reviewing My Short-Term, Liquid Wealth Allocations after the UOB One Account Bonus Interest Rate Reductions.

By now, many of you would have heard that UOB has reduced the bonus interest rates that you can earn if you bank with them.

The revised rates are below:

Changes such as this sometimes positively affect us but also could negatively affect us, as in this case. On first inspection, the interest rate that we can earn is reduced.

We also observe that if you spend a minimum of $500 on your credit card and credit salary into your UOB account, there may be more interest to earn on an additional $50,000 of your savings. If you spend $500 minimum on your credit card and successfully carried out 3 GIRO transactions, you can earn more interest on an additional $25,000 of your savings.

Currently, I do not credit my salary to my UOB One account, so I would only fulfil the credit card spend and 3 GIRO transactions.

I decided to compile the impact in the table below:

The top table shows for each band of money in your UOB One Account, how much interest you will earn currently and when the interest rate changes in first of May.

The second table shows base on how much money you have in your UOB One Account, how much interest in absolute terms you will earn and what is the effective interest rate.

If you have less than $100,000 in your UOB One account, you will be worse off by the new changes. Your effective interest rate dropped from 2.5%-2.9% to about 2.0%-2.2%.

If you have more than $100,00 0 in your UOB One account, your effective interest will be higher than before.

If I have excess funds that came up to more than $100,000, this change would be better for me if I can only do these two banking options with UOB.

Some of you would find this effective interest rate unappealing and it is fair to say that. If I were to look at how much I lost due to the change in bonus interest, the sum doesn’t look too significant and I think I should focus on the fact that I could still get 2.0% for some of the money that I would like to be more liquid.

I compiled a similar table if your focus is on credit card spend and salary credit:

I think the loss in interest is more significant.

The average loss is about 1.0%.

With the increase in amount of money that can earn bonus interest, we see that only those who can put in $140,000 at least will be able to benefit from the changes in bonus interest.

The interest rate now is more aligned to the interest rate of shorter term, no volatility investments such as very short term bonds, or money market funds.

Some alternatives to the UOB One account are:

1. Singapore 6-month Treasury Bills: 3.8% p.a.
2. Fullerton Cash Fund SGD Current Gross Indicative Yields: 3.87% p.a.
3. Fullerton Cash Fund USD Current Gross Indicative Yields:: 5.50% p.a.
4. OCBC 360 Account Salary Credit and Incremental Save: 4.0% p.a.
5. Singapore savings bonds: 2.99% p.a.

Making My Decisions Around the Interest Rate Changes

One of the things that we need to realise is that there is no permanence to the short term interest rate that we can earn. If there is permanence, it is that there will be returns volatility.

We must first understand the characteristic of these accounts. We are not going to lose money on them, but the interest rates will change from time to time. Then, we can ponder about the best use of these accounts as part of our wealth management plan.

The UOB Account, like the alternatives that I brought up, are good to allocate the money we need to be liquid such as our emergency fund goal, money to quickly call for our investments, or financial goals that is up and coming for the next 1 to 2 years.

If we require a higher rate of return to build our wealth towards some later, and more significant financial goals, we would need to deploy them into risk assets such as equities, longer term fixed income or property.

I look at different forms of investment securities like the way I just explained.

Even though the UOB One rate looks lower than the OCBC 360, and that other accounts such as DBS Multiplier might provide better rates, I know that if I switch to another one of the alternatives, the rates of these might change in the future.

I am at a stage that I would not wish to make so much changes.

The wealth will be build through longer duration assets such as equities, fixed income through ETFs and unit trust and that is where I will actively deploy the money to.

I should maintain less funds in accounts such as these, 6-month Treasury bills and the alternatives.

UOB One looks less attractive to OCBC now due to the extra hurdles and lower interest so the first $100,000 will be allocated to the OCBC and if there are excess, I would deploy them into SSB and 6-month Treasury bills.

I have to make GIRO transactions and use a credit card so the UOB One account is a good account to have if I have that much short term financial goals that require greater liquidity than SSB and 6-month Treasury Bills.

That is where I am with the UOB One account.

At the end of the day, I felt that the more wealth is created not in thinking about where best to deploy among these capital secured investment options but where best to deploy among those risky investment options.

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