I am one of those who have been waiting for the next big crash to come, opting to construct my portfolio with more than 50% cash. Well, sitting on a pile (small one for me) of cash is not the gloomiest situation, but watching them eroding away by inflation day after day is not exactly enjoyable either. For anyone who wish to grow their wealth, keeping cash that generates close to nothing is hardly a palatable proposition.
Thankfully, the banks are competing hard to get our cash parked with them. I've been parking my warchest in UOB ONE and BOC SmartSaver accounts, with the former yielding an average of 2.43% p.a. and the latter, between 1.55% to 3.55%. I was actually quite happy to continue with this arrangement until I chanced upon
SGBudgetBabe's post on Be Your On Boss (BYOB) offer by DBS. More details on the product website
here.
On first look, BYOB offers interest rates of up to 4% for the next two years if you do the following:
That's simple enough, but do scroll to the bottom of the
product page and read through the terms and conditions. Of note, to qualify for this offer, you must be between 18 to 30 years old, and with no salary credit arrangement with POSB/DBS between 1 Sep 2016 and 28 Feb 2017.
Interest Calculation
Being slightly more mathematically-inclined, I was wondering how the interests are calculated. Below is an
illustration provided by POSB/DBS on interests calculation:
On first look, it does seem like the interest are
not credited and compounded monthly. Upon further investigation, I found out that the "Additional 2% interest" only applies to the original amount credited + interest earned in the preceding month. The "Bonus 2% interest" only applies to the original amount credited into SAYE. This all sounds very confusing, so I tried to reverse engineer the whole calculation process:
I tried various methods of calculating, but I simply couldn't get the exact figures provided by the bank. The above table shows the closest attempt I managed.
If I changed the monthly saving amount to $3000, this is what I get:
A total interest of just over $3000 over 2 years. Neat.
Just to satisfy my curiousity, I wanted to find out what's the equivalent rates if interests are credited and compounded monthly, instead of the convoluted way of calculation that POSB/DBS has decided to use. I've learnt not to trust headline numbers so readily. This is what I found:
An equivalent interest rate of approximately 3.9%. Not too different from the headline numbers, fortunately.
To Sign Up or Not to Sign Up?
Numbers don't lie, and I think this is one of the best places to park your excess cash at the moment. You might lose some liquidity though, since to qualify for 4% (or 3.9%) promotional rate, you are not allowed to make any withdrawals.
On the flipside, at least you know for certain the amount of interest you will get at the end of the 24 months. Neither UOB ONE nor BOC SmartSaver can give you this certainty, since the terms for those accounts can be changed overnight.
Oh oh oh....and if you sign up before 31st Oct, you get an additional $88 as a welcome gift =)
P.S. This is not a sponsored post. My blog is not popular enough for that, so you can be assured that all opinions contained herein are those of mine and mine alone.
