Tan Kin Lian's Blog: Save in a bank account first

Thursday, September 27, 2007

Save in a bank account first

Hi Mr Tan,

I'm really glad that I happen to read your blog! I have been searching online and looking for the right saving plan for myself but I just couldn't find one that I understand. I've tried looking at some websites of banks and insurance companies, it got me more confused. I need some advice from you.

I am a fresh graduate, earning $1.6k per month. I would like to do some saving plans for my future to invest in a fund that will grow after like 5 – 10 years.

I'm kind of in dilemma because I'm thinking of furthering my studies next year if I manage to get into a local university. Should I start my saving plans now or wait till I'm working full time permanently?

MY REPLY

You can read this FAQ

I suggest that you save in a saving account with a bank first. The interest rate may be low, but you do not incur any upfront investment cost. When you are clear that the savings can be locked up for the long term, you can invest in a low cost fund, which is described in my FAQ.

I hope that this suggestion fits into your needs.

17 comments:

Unknown said...: As you intend to make yr savings a priority 1st, here's my advise:

(1) POSB My savings acc.
(2) NTUC's 'Revosave' policy

Posb:$50/- a mth(emergency fund)
Revosave: $100/- a mth

as posb is the common peoples' bank & ntuc is a valued insurance company.. :>; September 27, 2007 11:34 PM
Anonymous said...: Don't buy the Revosave. Most of your savings for the first year is taken away to pay commission to the agent.

Better to keep the money in the bank account.; September 27, 2007 11:52 PM
hongjun said...: If not you may consider MayBank iSavvy account. Their interest rate is currently 1.68% for deposit more than 5K but less than 50K and 1.98% for deposits more than 50K.

Regards
Loh Hon Chun; September 28, 2007 12:03 AM
Anonymous said...: Gregory,I don't know how much you know about revosave.But if you are an Income agent i would excuse you.
This person is going back to school next year. He needs every cent saved and if possible with some return within ONE year. There is no instrument that can give him liquidity( liquidity defined as money accessible any time without loss to capital) other than a saving account or a money market account. Revosave starts REFUNDING
37% of HIS money(premium) AFTER the 25th MONtTH and thereafter end of every year.This is no liquidity. This is robbery.(high commission to agent) The poor guy has to wait for 2 years and he needs all the money next year to go back to school.
To save, even the worst endowment plan is still better than revosave in terms of return and protection.
How on earth can revosave be recommended. Revosave is a lifestyle product that extols spending on rainy or sunny days .
Mr. Tan's recommendation makes financial sense and review after your graduation and after getting a permanent job.
Don't buy Revosave.You will curse and swear when you realise you get locked up ,years down the road and the only way to get out of that is
your willingness to lose alot of your money.
Meantime put your money, every cent, into a saving account.; September 28, 2007 12:48 AM
Priyadi said...: invest in money market account. no load commission, better return than saving account, very little risk, very liquid.; September 28, 2007 12:57 AM
Anonymous said...: The suggestion by Gregory is a terrible one.He must be an Income agent or someone sympathetic to Income. This man's priority is study and yet you allocated so little to cash but double the amount to revosave.Let me tell you revosave is a terrible saving vehicle. After reading Doc. Money's analysis I did my analysis and I came to same conclusion.
As like all others , I also suggest that all saving should go into a saving account which gives best return. This will give him ready access to his money.
Mr. Loh's recommendation
of the banks is worth exploring.

Thanks
SKAng; September 28, 2007 9:57 AM
Anonymous said...: If you are looking for liquidity invest in a money market. The return is about 3.5%. This is real liquidity and not in some product which requires a lock in period before your own money can be released to you albeit one third of your money.I understand revosave is like that with lock in but promoted as having liquidity. I am puzzled.I think these agents are confused or the customers are being confused.
Yes , invest in money market. It makes your investment work harder than saving deposit.; September 28, 2007 12:52 PM
Unknown said...: Whether he needs e money or not is not of my concern.But for someone(especially a student who is jus starting on the savings path of life), e 1st big step is to save small. Tertiary studies will always be a big expense & securing a scholarship might help him. Otherwise he needs e financial clout of others around him.. :>; September 28, 2007 2:46 PM
Anonymous said...: So you see, even for a simple need we get all sorts of advice but that is always one advice that is most correct and is one that is common sense and best meets the needs of that person.This is appropriate advice. There is no conflict of interest.; September 28, 2007 9:29 PM
hongjun said...: I do agree the 1st step is to save small. However, it would be more wise to save in a savings account and definitely not somewhere that will lock you in especially if you need cash during further studies.

Tertiary studies always cost a bomb! School fees, daily expenses, textbooks, etc all will incur quite a substantial amount of expenses. Liquidity is particularly important here. One important note is not many will be eligible for a scholarship.

Regards
Loh Hon Chun; September 29, 2007 12:44 AM
Thomas Phua's Blog said...: Keep the money in the bank like what Mr Tan advised until things are more firmed or until you finished the tertiary education that you intend to undertake.

Time is on your side to do whatever investment or savings you want to do after.

My own nephew did an investment plan, but a year later decided to go for his Master's degree. It was unexpected, so he place the policy on Premium Holiday.

Some plans has such flexibilility, but if you are already firm on a study ahead, just save it in the bank, and plan for investment and saving after you have graduated.

As a young person, time is on your side.

- Thomas Phua; September 29, 2007 8:20 AM
Anonymous said...: So you see, gregory, needing money may not be your business but the young man going for further study has to ensure that money is readily reached when he needs it. Advising him to put more into Revosave only creates liquidity for the insurance agent
Liquidity is first priority. As thomas advised, wait till every settled before embarking on a saving plan . He is still young.; September 29, 2007 12:17 PM
Unknown said...: Yes, i agree, youth & time is currently on his side but e earlier he starts to save e easier it will be for him to meet his financial goals within a certain time-frame as procastination & a change in situation can set in later.

I know of many students who study & also set aside some money for saving purposes. I do believe that someone close to him will be able to help fund his studies. There are also institutions out there who are willing to pay for someone's full-time studies..& there are those who work 1st for a short time then continue studying again.; October 01, 2007 12:14 AM
Anonymous said...: If the amount is above 1k to 10k. I would suggest buying T-bills or short term Singapore government bonds.

I know of 2 ways to do this:
1) T-Bill & Government Bonds(from major banks). However, the banks earn quite a cut from the bid/ask price difference. You have to check out how much each bank charge yourself.
2) Opening a poems(Phillips Security) account. Purchase Singapore Government T-bills with Poems. They only have T-bills, no long term Government bonds. Buy T-bills with this account.

You can get the current t-bill rate(which is about 2% now) even if the amount is relatively small. NO bank will offer this interest rate to you for small amounts.

Personnally, as I am awaiting for the right time to invest in the stock market. I park my money in Poems T-bills. If I need to enter the market, I sell off the T-bills to fund the stock purchases.; October 03, 2007 10:19 AM
Unknown said...: How abt investing in unit trusts mr ted,(it currently gives gd returns),no hassles whereby a gd manager will handle e fund for you..another alternative for yr portfolio?

:>; October 03, 2007 9:48 PM
Anonymous said...: Another thing, the Bid - Ask price difference for funds(especially certain insurance linked funds) may be around 5%. The price difference when you buy/sell a fund is so large.

This is something to consider when you are parking money in Money Market fund for short term. You are making 2-5% a year. Will the Bid-Ask spread take all your profit? Or cause a loss.

I am not from the insurance/fund industry. I wonder why the spread is so huge. Who is the buy/seller? Does the difference go to the fund?; October 04, 2007 10:16 AM
Thomas Phua's Blog said...: Most of the fund offer bid spread is 5%.

But if the fund performs well, it is worth it.

I did UOB Global IPO Fund from 2004, and it consistently gives me 10% yield

Ntuc Income Combined Fund-Growth also consistently average 10% last 4 years, 2003 is the best with 25.5%.

Funds are more for long term, though historical price is not to be taken as for future, but if fund has good track record, forward should be promising.

My DBS Portfolio E is a washout from inception.

But if you have bought latter years from 2003, it would have double for you.

Good to find out from others who have bought the fund years before, if the fund performs consistently, it is good to consider.

But for this young gentleman, time is on his side, and his priority should be to fund the education first before investing.

- Thomas Phua; October 04, 2007 8:01 PM