DBS Be Your Own Boss - A Very Attractive Offer!

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.

Passive Income Update

HAPPY NEW YEAR

Happy New Year everyone! 2016 seemed to have flown by don't you think? It's true that as one grow older, time seems to speed up. It's rather scary because a year can just pass us by while we are playing Candy Crush or Pokemon Go. It is timely, on the first day of 2017, to remind myself that time is a precious limited resource, and I should be more deliberate and intentional in the way I use it.

As a continuation to the update on my networth, and before I start living out my 2017, I shall take stock of the passive income I received in 2016.

In 2016, I received passive income from the following sources:

1. Rental Income from my DBSS flat.
2. Interest Income on my Cash Holding.
3. Dividends from my Investment Portfolio.

Let's go through each of them in turn.

RENTAL INCOME FROM DBSS FLAT

For the uninitiated, after the arrival of our daughter, we had to seek waiver from HDB to allow us to rent out our newly-acquired DBSS flat (read more about it here). It is unlikely to be a long term arrangement as we still have to move back to serve our MOP. Nonetheless, the passive income from rental really helped boost our monthly cashflow. We have been saving up the entire amount to pay down our huge mortgage.

Rental Income: $25,000 after deducting all the associated fees (I assumed expenses are 2 months worth of rental).

This works out to be $2083.33 per month.

INTEREST INCOME ON CASH HOLDING

Throughout the year, I earned interest from a combination of (1) OCBC 360 account, (2) UOB ONE account, (3) BOC SmartSaver account, (4) Standard Chartered eSaver account, and (5) CIMB Fastsaver account, depending on the promotion available and what suited me more.

BOC SmartSaver Account.

Out of the list of accounts above, I think BOC SmartSaver is the least raved about one. I don't know why, but it offers one of the best rates when it first started out. Take a look at their interest rates:

Bonus interest rates for BOC SmartSaver account.

Prevailing savings interest rates for BOC SmartSaver account.

I rushed to open an account after reading a blogpost by scg8866t. Basically, to earn 3.55% interest, you have to fulfill the same 3 conditions as what's required of OCBC 360 account. But there was a hack. the $500 card spend can be fulfilled using their debit card. So.....this means that I could use AXS mobile and pay for my UOB ONE credit card bill using my BOC debit card. That's killing 2 birds with 1 stone! The Spend Bonus is a whopping 1.55%, and combine that with 3 Bill Payments of $5 each, and the base savings interest rates for balances of $50,000 and above, I could get an effective interest rates of 2.55% p.a. even without qualifying for the Salary Credit Bonus. This was awesome, until recently they closed the loophole and made a whole host of other changes. It's still worth checking it out though (here), because they made some attractive improvements to their Family Card.

Oops, sorry for digressing.

Here is my Interest Income for 2016: $3433.

This works out to be $286.08 per month.

DIVIDEND INCOME FROM INVESTMENT PORTFOLIO

I am looking for an elegant way to share my portfolio on this blog, but that's still work in progress. It's a small portfolio with a few legacy holdings from the times when I simply anyhow buy. But I've since learnt my lesson and am now trying to build up a quality, income generating portfolio.

Dividend Income: $745.73.

This works out to be $62.14 per month.

SUMMARY

Total Passive Income for 2016: $29,178.73

But if I were to remove rental income, total passive income will become: $4,178.33

This works out to be $348.22 per month.

Cash Is King, Until It No Longer Is

Allow me to share with you a (true) story.

My paternal grandparents were born in the 1920s/1930s. They owned a small piece of land in Pulau Tekong where they cultivated rubber trees, grew vegetables, reared live stocks like chickens and pigs et cetera. As you all know, the island is now exclusively used for military training. My grandparents were displaced when that happened, but not without being compensated with a 3-room HDB flat right beside Tampines Mall and some money. Exactly how much, I have no idea, but at one point, my granddad had over a $100k.

At that time, that much money could get you a freehold landed property. But nope, my granddad decided that keeping it in the bank is the way to go. The outcome needs no elaboration. 

While cash is king, we must remember that we are actually losing money every year if the returns on that money is lower than inflation. My portfolio consists of mainly cash now, as I wait patiently for the opportunity to pick up great companies on the cheap. I don't know when that will come, so meanwhile, the best I can do is to find the highest yielding place to park my money without taking on too much risk nor losing too much liquidity. Not that I have got tons of money though, as a bulk of my savings were spent on wedding, down-payment for my property, renovation & furnishing, having a kid, and all the other things that an ordinary, young married adult will need to spend on. What's left, I park them in the following places while waiting for the right time and opportunity.

1. OCBC 360

Criteria to fulfill to earn bonus interest on balances of up to $60k in OCBC 360 account. 

This is my salary crediting account, and it yields me 1.25% (1.2% bonus interest + 0.05% base rate) without me doing anything else. Of course, the other low-hanging fruit is making 3 online bill payments to earn an additional 0.5%. I am also usually able to spend $500 on my OCBC cards to earn the other 0.5%, yielding me a total of 2.25%. However, I prioritise my UOB credit card spend before OCBC's because UOB gives me a higher yield on their UOB ONE account, which brings me to the next point.

2. UOB ONE

Criteria to fulfill to earn bonus interest on balances of up to $50k in UOB ONE account. Note that unlike OCBC 360, spending of $500 on UOB credit card is a must for the account to qualify for any bonus interest at all.

I strictly maintain $50k in this account, nothing more, nothing less, due to the tiered structure of its interest rates. I've already set up three GIRO bill payments, so it only makes sense for me to prioritise spending $500 with my UOB ONE Card. If I don't, I am back to earning the base rate for that month. If I do, the GIRO deductions will bump up the effective interest rates to 2.43% on the $50k balance. Spending $500 on my UOB credit card also helps me in getting higher interest rates in my 3rd account - Bank of China's SmartSaver account.

3. BOC SmartSaver

Criteria to fulfill to earn bonus interest on balances of up to $60k in BOC SmartSaver account.

I maintain a minimum of $50k in this account, so my base interest is 0.40%. Together with the 3 bill payments, the account already yields me 1%. I forego the 1% from crediting my salary into this account because well, I only have 1 income source, and OCBC gives me 1.2% for that. The last criteria, $500 credit/debit card spend to give an additional 1.55% is the real deal. I am going to let you in on a little secret of mine; this mighty combo I believe many of you will be thrilled to find out. Ready? Here it goes: 

The Bank of China Great Wall International Debit Card that is issued together with the SmartSaver account can be used to pay for another credit card bill. This IS the real deal. I use this as the perfect combo with UOB ONE Card. This means that I only need to spend $500 a month with UOB ONE card, and then use BOC debit card to pay for that credit card bill. Voila! I kill two birds with one stone. It's hard to chalk up so much credit card spend every month, so this works like a charm, giving me an additional 1.55% interest on the balance in this account to yield a total effective interest of 2.55%.

So if you have $170k cash, and are thinking hard about making them work harder for you, the above solution might work for you. With just $500 credit card spend, OCBC will give you 1.75%, UOB 2.43%, and BOC 2.55%. If you can chalk up $1000 credit card spend a month, OCBC can yield an additional 0.5% to make 2.25%. Not worth forcing it just for that 0.5%, but on months when you have that extra expense coming in, why not, right?

Note that bill payment is never a concern because you can simply pay $5 to the same three bills that are GIRO-ed from UOB ONE account. Do this using your OCBC and BOC accounts every month, and the outstanding amount will be GIRO-ed from UOB ONE account.

What about you? Where do you park your warchest to maximise the return while you wait?