(SINGAPORE) Cash-rich Singaporeans averse to risky alternatives are in an unhappy spot of having their savings eroded by inflation.
Not only is inflation clearly on the rise - it hit a 26-year high of 6.6 per cent in January - banks are further cutting their already miserable deposit rates.
Last week, DBS Bank slashed its fixed deposit (FD) rate again to 0.9 per cent for a 12-month deposit of $1 million. The latest revision is less than half of the 2.02 per cent it offered on Jan 2.
And OCBC Bank's 12-month FD rate has been lowered to 1.2 per cent from 1.4-1.8 per cent last year. This is for amounts between $500,000 and $1 million.
Despite the paltry returns on deposits, those with spare cash appear to have few choices beyond the safe haven of banks. In January - the latest month for which data is available - savings and demand deposits jumped 24 per cent to $143.1 billion, swelled by high bonuses paid out after a robust year.
But fixed deposit growth slowed for the 10th straight month. It was up 7.6 per cent to $171.4 billion, versus an average of 18 per cent in 2007.
'The trend in the past seven years is that when interest rates rise, people take money from savings and current accounts and place it in FDs,' said Standard Chartered's general manager of wealth management Dennis Khoo. 'When interest rates fall, the reverse happens. Now, when the gap is no longer large, there is no incentive. So people forget to shift to FDs.'
Typical interest rates for savings and demand deposit accounts are 0.3 per cent.
Interestingly, bankers said that generally, people with excess cash don't seem to be using it to pay down loans such as mortgages.
'We review our interest rates regularly and have recently adjusted them downwards in line with the market,' said Fabian Lum, OCBC Bank's vice-president for group wealth management (deposits). 'We have not seen significant withdrawals of fixed deposits by our customers or changes to how they make use of such products.'
Some observers reckoned that money is left in savings and demand deposits accounts while people mull the choices of higher returns elsewhere.
'With global interest rates likely to dip further, some investors prefer to stay liquid,' said Winston Teo, United Overseas Bank's head of deposits, investments and insurance. 'That said, in a climate of stock market volatility, there will be opportunities and it may be a good time to pick up some bargains as some equity valuations have fallen to attractive levels.'
Bankers said that customers are asking about higher-yield products, though caution seems to be the order of the day.
Some of the more gung ho are venturing into foreign currency products.
Helen Neo, Maybank's head of consumer banking, said that the bank is seeing greater investment in structured deposits that are principal protected and also offer higher returns. 'We are also seeing growth in foreign currency time deposits,' she said.
Stanchart's Mr Khoo said that since August last year, the bank has sold more than $400 million of deposit-type products, principal protected and capital guaranteed.
As for Stanchart's dual currency product, sales have grown three to five times since September last year, he said.
