Looking beyond Sing-dollar deposits

Singapore dollar time deposit rates are currently very low, at less than one per cent per annum for deposits below $50,000.

These rates are not enough to cover Singapore's inflation rate, which rose to a 25-year high of 6.5% in February this year.

So leaving your money in a Singapore dollar fixed deposit may not be a wise thing to do because inflation could erode the value of your hard earned savings.

Investing in financial assets like stocks, bonds and unit trusts are commonly cited as options, which investors can consider to get better returns on their savings.

But there is another option that is sometimes overlooked. That of foreign currency time deposits that can offer higher interest rates than Singapore dollar fixed deposits.

These deposits can also offer additional returns if the foreign currency appreciates against the Singapore dollar.

For example, if you had placed your money in a Euro dollar time deposit say one year ago, you would have enjoyed currency gains as well.

The Euro appreciated by nearly 5% against the Singapore dollar over the 12-month period up to 14 April 2008 according to data from Factiva.

The Euro has enjoyed strong demand because the European Central Bank has kept its interest rates steady despite moves by other central banks to cut rates in recent months.

Also, some central banks have indicated that they plan to diversify their currency holdings, reducing their exposure to the US dollar and increasing their exposure to the Euro.

Aside from the allure of higher interest rates, foreign currency deposits will also appeal to those who have a use for foreign currencies either now or in the future.

Like for instance, for those who have children studying overseas or who plan to send their children to an overseas university, it may make sense for them to set aside some of their savings in foreign currency deposits. This will allow them to hedge against the risk of currency appreciation.

For more details, please refer to:
http://www.ocbc.com/wealth_mgmt/fa_inv/fa_inv_080501_deposit.shtm

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