| Assessment | Structured Deposit | Fixed Deposit |
| Protected by Deposit Insurance Scheme up to S$50k, aggregate of all accounts for each person with the bank, if bank becomes bankrupt (insolvent) | No | Yes |
| Capital Guaranteed (provided capital held till maturity and bank does not become bankrupt) | Yes | Yes |
| Early Withdrawal | No pro-rated/market interest, fees may apply | Market interest, e.g. 0.05% for savings rate |
| Interest Income | Guaranteed for the tenure | Guaranteed for the tenure |
| Tenure | 5 years | renewable every 1 or 2 years |
| Reasonable Interest Rate per annum (as at 9 Feb 2015) | 2% | 1.3% |
The fundamental difference is that structured deposits are not protected by the the Deposit Insurance Scheme if the bank becomes bankrupt, which puts it in the same category as Investment products. While we can have "faith" in the bank, the difference in returns of 0.7% may not warrant taking the risk, especially if you are not filthy rich. By filthy rich, I mean, you have money in different banks and have fully utilised your deposit insurance quota in different banks, and you are fine with taking the risk.
The Deposit Insurance Scheme protects the end consumer by requiring banks to pay the central insurer a sum based on the amount of deposits they hold, such that if the bank becomes bankrupt, the insurer would pay each depositor with the bank, the amount of savings held in the bank, up to S$50,000. Only savings deposits and fixed deposits are protected by this Scheme. The purpose is to avoid a rush of withdrawals if the bank enters a cashflow crisis, which would further worsen the problem. Read more about it from the Singapore Deposit Insurance website.
Personally, being risk-adverse, I prefer to open a few bank accounts and save up to $50k in each bank. At least, when I need some cash to apply for an Initial Public Offering (IPO) or buy some shares on the stock market (when the price is favourable), I will have some cash on hand. As I also like liquidity and flexibility, I dislike deposit tenures that have lock-in periods more than 12 months.
If you expect interest rates to rise year on year, all the more you will like the flexibility to renew Fixed Deposits every year.
The Deposit Insurance Scheme protects the end consumer by requiring banks to pay the central insurer a sum based on the amount of deposits they hold, such that if the bank becomes bankrupt, the insurer would pay each depositor with the bank, the amount of savings held in the bank, up to S$50,000. Only savings deposits and fixed deposits are protected by this Scheme. The purpose is to avoid a rush of withdrawals if the bank enters a cashflow crisis, which would further worsen the problem. Read more about it from the Singapore Deposit Insurance website.
Personally, being risk-adverse, I prefer to open a few bank accounts and save up to $50k in each bank. At least, when I need some cash to apply for an Initial Public Offering (IPO) or buy some shares on the stock market (when the price is favourable), I will have some cash on hand. As I also like liquidity and flexibility, I dislike deposit tenures that have lock-in periods more than 12 months.
If you expect interest rates to rise year on year, all the more you will like the flexibility to renew Fixed Deposits every year.
Good effort for the write up. Keep it up! The devil is in the detail.
ReplyDeletehttp://www.moneysense.gov.sg/understanding-financial-products/investments/types-of-investments/structured-deposits.aspx
Thanks and yes, the devil is in the detail :P I guess I should have contextualised my assessment. It was actually with reference to a structured deposit by Maybank which has bank-guaranteed capital. http://info.maybank2u.com.sg/personal/investment-insurance/investment/maybank-saver-series-8-structured-deposit.aspx
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