Tan Kin Lian's Blog: Structured deposit

Tuesday, June 29, 2010

Structured deposit

My friend brought back a brochure of a structured deposit offered by a big local bank. It contains about 10 pages of explanation. It offered an interst rate of around 1.5% per annum and require the investment to be locked up for a few years.,

I advised her not to invest in this type of structured deposit. Why should a consumer have to read some many pages of conditions that are written by the bank through their lawyer? Surely, there must be some catch somewhere?

It is better for the consumer to take the risk and invest in a low cost investment fund. The risk can be reduced by following the principles set out in Practical Guide on Financial Planning.

If the consumer finds the market to tbe too high now, or that the economic situation is uncertain, it is better to keep the money in a savigns account (earn 0.125% per annum) and wait for a better time to invest in the fund. There is no point to lock up the monty for a few years and earn just 1% per annum (and still be subject to conditions that is not so transparent to the consumer).

Tan Kin Lian

15 comments:

Anonymous said...: Maybank online Isavvy FD offers 1.85% pa for 3 year tenure. For 2 years it is 1.4% pa. Min sum $250K and above.

Some points to note, however.

1. Maybank is a foreign bank.

2. The govt 100% guarantee on all savings and FDs in licensed banks here ends on 31 Dec 2010, unless otherwise changed.

After that it reverts to the deposit insurance scheme where max guaranteed is $20K.; June 29, 2010 9:19 AM
Anonymous said...: Mr. Tan,
Which bank's structured deposit is this? Do you have a pdf of the brochure?
Thanks
Raj; June 29, 2010 10:13 AM
Anonymous said...: We are beginning to see the return of aggressive marketing. The fact that deposit interest rate will always be lower than inflation, laymen like us are always tempted to look for ways to stretch our money.

To totally ignore Structured Deposit works well for those who were burnt before but not for those who are not.

Slowly and surely, the pool of retail investors entering the "low-risk market" will starts to grow. This time, the banks will be smarter i.e. do the same as previous e.g. quota, high commission, high interest return but claim low risk etc. but make the cusumers sign all kind of documents to protect itself e.g.

i) Have read and fully understand the risk
ii) Banks are forever not at fault in the event of product default.
iii) Risk analysis said you are conservative but you insist of investing.

I think the general rule is take the brochure back and study it. If you don't understand the product well, then don't put your hard earn money there.

Do not take short cut by believing everything the agents said. From the victims of Minibond, the nightmare started in Sept 2008 and it is still on-going especially for those who invested hundreds of thousands retirement saving.; June 29, 2010 11:07 AM
Anonymous said...: The moment I read this,this bank name would automatically come to my mind.Why is it that they still promoting this kind of product and lock our money for minimum of at least 5 years?
Singaporean should be wiser by now.

Leong BG; June 29, 2010 11:42 AM
BryanT said...: "Why should a consumer have to read some many pages of conditions that are written by the bank through their lawyer? Surely, there must be some catch somewhere?"

I think the above statement by TKL is not fair.

I am a skeptic of such products myself, but to equate there being many pages and the text being possibly written by a lawyer with there being a "catch somewhere" is not justified.

There are many occasions in our daily lives when accompanying explainings and conditions need to be elaborate. And I am sure many lawyers product ethnical work.

TKL would have done us a favour to explain what to look out for, rather then to write financial products off on such seemingly parochial grounds.; June 29, 2010 11:53 AM
Anonymous said...: I think some who can take the risk can buy the product. It is a free market. Consumers can also choose not to buy the product.

Everyone agrees that cigarette and alcohol is no good. If cigarette and alcohol is so harmful, why government still allow the sale?; June 29, 2010 12:03 PM
Anonymous said...: The ban on structured products after MAS "investigation" was only 6-12mths for most banks. The ban is now expired and the banks are back to their old tactics again. One can only hope that consumers are now more savvy, but curiously the people of this country suffer from extreme short-term memory syndrome.; June 29, 2010 1:07 PM
Anonymous said...: All my RMs from various local banks are starting to contact me by phone, trying to sell some investment products, but the memory of losing a lot of my retirement moneys on the minibonds
made me wary, these people would do anything to con me. I told all my bankers not to have any contact with me directly, not even to phone me at all. I now view banks
on their purely utilitarian function only - as a temporary custodian of my moneys, and when time is right, withdraw and invest myself.; June 29, 2010 1:09 PM
Tan Kin Lian said...: I have to disappoint Bryan T. I am not wasting my time to study this product. Anyway, there are 100 of such products to study.

If Bryan T wants to get an analysis of the product, he has to go somewhere else.; June 29, 2010 1:49 PM
Concerned said...: There is a saying "If the old things don't go away, new things will not come". This also applies to people. There is always new customers who are unaware of the minibond fisaco and think that these new structured deposits are just like fixed deposit and pays interest higher than the FD. So it is better to put their savings in these Structured Deposit. That is why the FI can survive and refuse to admit their errors and pay compensation and can come out with new Structured Products to sell to new wave of customers. Look luck to these customers who buy such products.; June 29, 2010 4:27 PM
Anonymous said...: Hmm ... there were actually some fairly good SD; in fact, I had invested some money 4 years ago in a 3-year SD linked to performance of basket of equities in utilities based in Japan, USA and UK.

The bank selling was OCBC and the fact sheets are mostly in layman terms. According to the brochure, most of the money are "parked" in the corporate bonds of the above-mentioned utilities.

I managed to get around 3plus percent interest per year. Not too bad in these few volatile years.

regards,; June 29, 2010 8:09 PM
Anonymous said...: Anon 8:09PM,

You contradicted yourself. First you said the SD was linked to performance of equities. After that you said the SD was "parked" in corporate bonds.

It sounds like the SD is based on equity-linked notes (ELN). ELNs have largely come thru the financial crisis more or less intact so far, thanks to the massive quantitative easing and bailing out of the financial industry (say thank you to Benanke, Geithner, Obama & Hank Paulson). Otherwise you'll be in deep shit. Looking forward 6 months, I'm not sure how sustainable the stock markets are going to be.

Those SDs based on credit-linked notes (CLN) were all whacked out. Famous ones are minibonds, high notes, jubilee notes.; June 30, 2010 1:43 AM
Anonymous said...: To 1:43,

Thanks for pointing out the discrepancy in the posting, it just show most people dont understand bonds and equities... I would take Mr Tan's advice stay away from SD!

Its a good thing it was invested in utlities as during a "meltdown" these are stocks that normally hold up....

A friend of mine was adviced by his RM to invest in "twin currency" in the Aussie $, its underwater. But the bank I am sure is making a "killing" .....; June 30, 2010 10:36 AM
Anonymous said...: I don't understand why people have to invest in SD, when the returns are so low. The SDs marketed by insurance companies are even worst.
People should focus on good dividend paying securities such as REITS. Most REITS pay about 7% a year in dividend distributions and their underlying property assets have the potential to appreciate in value when the economy eventually picks up.; June 30, 2010 12:34 PM
Anonymous said...: The RMs are all incentivised to sell and get commision based on volumes. Customers dont understand terms and details of the investments. For almost 9 months, my friend was getting advise from Stan Chart about aussie $ and lost losts of money on that. Then again on some China funds. When he complained, the bank conveniently took the discussion towards T&Cs and the inherent risks in such investments etc.

I am very wary of these RMs (actually salesmen).

Mr. TKL, Which bank are you referring to at the beginning of the post? I want to know explicitly and i think we should make each other aware of such incidents - if only just to be careful.

Rachel Leong; June 30, 2010 12:44 PM