Published March 11, 2009

Little to cheer about for depositors

Savings interest rates unlikely to rise soon as banks cut costs to stay lean


(SINGAPORE) All cashed-up with nowhere to invest, as stocks and property markets shrink? If savings or fixed deposits are the only places left to park money, the least an investor can do is go for higher-yielding products from the likes of Maybank and Standard Chartered.

As a search across the industry found, eight local and foreign banks are quoting rates of between 0.4 and 1.08 per cent per annum for a one-year fixed deposit of $200,000.

The rates may not reflect interest accrual differences, but one of the highest quoted came from Maybank's iSAVvy time deposit. Investors can expect to receive 1.08 per cent per annum in total, comprising upfront interest of 0.5 per cent and another 0.58 per cent when the deposit matures.

For the same investment, the three local banks are offering returns of 0.55 per cent per annum. 'Maybank's interest rates have consistently been competitive,' said Helen Neo, head of consumer banking at Maybank Singapore.

Some savings accounts are even quoting rates above those of fixed deposits. OCBC's FairPrice Plus Savings account for example, earns 0.5 per cent per annum on the first $50,000 and as much as one per cent per annum for amounts above that. The maximum deposit however, is capped at $500,000.

Standard Chartered Bank is also sweetening the deal with a 0.88 per cent interest rate for e$aver accounts of $200,000 or more. This does not include promotional rates, which the bank is offering to mark its 150th anniversary in Singapore.

Deposit interest rates have been falling recently. DBS, for instance, lowered rates on its MySavings account from 0.45-1.5 per cent per annum to 0.4-0.6 per cent per annum from last Monday.

The decline in deposit rates follows a slide in the Singapore Interbank Offered Rate (Sibor) - a reference rate that banks use to lend money to one other. Three-month Sibor is now 0.69 per cent - about 30 per cent lower than at the start of the year.

Not only are returns on plain deposits low, it also takes a lot of money - as much as $1 million - to earn more. At OCBC Bank for instance, 12-month time deposits of up to $999,999 bring in 0.55 per cent per annum. It is only on crossing the $1 million mark that the rate rises to 0.625 per cent.

And deposit interest rates are unlikely to soar any time soon. 'As we expect demand for loans to moderate going into a weak 2009, and possibly see domestic loans contract 2 per cent this year, this will keep domestic interest rates depressed,' said Dennis Khoo, Standard Chartered Bank's general manager for retail products. 'We expect the three-month Sibor to hover well below one per cent for 2009.'

As banks cut costs to stay lean, interest rates will remain under pressure as well. 'The savings rate is very much a cost of doing business to a bank, and cutting rates is very much in line with the fact that the competitive environment requires banks to keep costs down,' said Tai Hui, regional head of economic research for South-east Asia at Standard Chartered Bank.

CIMB economist Song Seng Wun also offered a gloomy prognosis, noting that inflation has been falling and central banks worldwide have been pursuing looser monetary policy. 'We would certainly like to see rates rebound because that would reflect an improvement in fundamentals,' he said.

The risk-averse have little choice but to keep their money in low-yielding bank deposits, Mr Song said. With bad news pummelling the stock market almost every day, it is 'better to have next to nothing than to lose money'.

For instance, those who invested in the Straits Times Index at the end of last year would have lost 16 per cent of their money as of yesterday.