Monday, July 13, 2009

Low interest rate

Interest rate globally is at a low level. Central banks have pumped a lot of money into the economy to stimulate its recovery. The hope is that low interest rate will encourage some people to buy to buy houses or cars, or businesses to invest and produce goods.

Low interest rate is bad for savers. They will not earn sufficient interest on their savings. To earn a higher return, they have to take the risk and invest in stocks or other assets.

Eventually, the economy will recover. At that time, the prices of equity, property and other assets will increase. Those who take the risk now will benefit from the recovery.

The alternative is to avoid risk and accept the low rate of interest, which is now less than 1% per annum. This is not sufficient to cover inflation. In my case, I prefer to remain fully invested and wait for the recovery.

Tan Kin Lian
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5 comments:

Anonymous said...

The risk may be low now for shares, if they are bought in a diversified approach (eg. via a ETF of an index such as STI index or via Unit Trusts). Such shares will almost certainly do better than plain interest PROVIDED the buyer sells the shares during the next bull run and not wait till the next recession.

July 13, 2009 7:39 PM
Anonymous said...

To my understand, local bank are given much higher interest rate in Malaysia. Why can't they give the same rate as there?

July 14, 2009 12:13 PM
Everlearning said...

It was this very reason that I started to learn how I could maximise my hard-earned savings than depositing with the banks.

Do not be enticed by the bank officers who sell you the idea of placing your savings deposit into endowment policies. Look at the guaranteed bonus, after ten years you still get the same amount you put for the first five years' tenure. You trust the unguaranteed bonus? I don't. I have rejected three recommendations by three banks.

Forget about the low interest. Leave a frugal lifestyle! You save much more this way than worrying about this interest rates.

July 15, 2009 3:53 PM
Everlearning said...

Oops!I meant "live" not "leave".

July 15, 2009 4:09 PM
Anonymous said...

Dear Mr Tan

Could you share with us what you invest in currently and how you allocate amongst various types of investment. Thanks.

July 15, 2009 4:27 PM

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