Banks lower interest for your deposits, Again!

Saving with the bank is already giving us every little interest. And now it will be even less, when the top 3 local banks have lowered interest rates on our deposits further to only 0.05%.

The new rates at OCBC Bank, United Overseas Bank and DBS Bank will become effective from Oct 1, Oct 12 and Oct 14 respectively. Standard Chartered will also lower their interest rates from 1 Nov 2011. Here is a table taken from DBS website.

Worryingly for savers, he added: ‘I don’t see any light of the tunnel for savers at the moment. Our interest rates are closely guided by international rates. And the downdraft is still occurring,’ he said.

From Business Times – What’s half of very little? New bank rates.

DBS offers S$500m preference shares

The above headlines was used in Straits Times to report DBS’s preference share issue to retail investors. This is good news to retails investors who could not participate in the S$1.7 billion preference shares offered to institutional investors in Oct 2010. The dividend yield of 4.7% per annum for 10years is attractive and we can expect this offer to be oversubscribed.

However, I found the article alittle disturbing. It started the report with:

RETAIL investors looking for a product yielding far more than bank deposits have a new option to consider.

and they go on in the article comparing it to bonds and bank deposits:

The shares, which operate in a similar manner to bonds, pay an attractive dividend of 4.7 per cent a year for 10 years – well above the 0.125 per cent interest that a saver currently gets on a POSB savings account.

The discerning investor may find the article somewhat misleading. Preference shares are not bonds, and should not be compared to deposits because it is an investment.

You should consider the following risks before buying:

• The dividend yield is not guaranteed as it is conditional on the DBS making a level of profit sufficient to pay the dividend.
• The shares are non-cumulative, so dividend payouts that are missed will not be paid retrospectively when financial conditions improve.
• There is the possibility that investors receive less than the principle amount if the preference shares are sold on the open market. A possible scenario is when market interest rates rise significantly.

If you find this investment a good complement to your portfolio, after considering the risks, go get it. It is already open for sale from now till 12.00 noon on 18 November 2010 via DBS, UOB or OCBC ATMs. And like we said earlier, we can expect this offer to be oversubscribed.