Friday, January 15, 2010

8% return on your deposits!

No, this is not a gimmick! For those who are residing in Australia, you can place your deposits at Westpac (2nd largest bank in Aus) and earn a 8% on your fixed deposit. The only catch is you have to place it for a 5 year term.

Wow, only $5,000 minimum sum and you can do it online! Reits in Singapore are not even yielding that kind of return. Forget SPH, Singpost and Starhub! Come over to Australia and enjoy risk free of 8%! Btw, what's the yield of our CPF? Temasek and GIC?

Imagine you put $1M, get the 8% and reside in China.



Vincent said...

Australian and New Zealand currencies are normally hedge above inflation. During the mega-inflation (8%) of 2008, NZD interest rate is at 9% while AUD at 7%. Heard that during 70s, NZD's rates are at 20%. They are good commodities-linked currencies.

Another advantage is they are highly liquid. If you need cash, can immediately convert them over. Currently ANZ bank in singapore offers the best rates. Next is May Bank.

NZD and AUD will raise their interest rates towards the second half of this year if all goes well (no terrorist attack/disease outbreak).

Wealth Journey said...

Don't think we can get that kind of Aussie FD in Singapore. We are using offshore rates in Singapore.

For those deposits in Australia, they are subjected to taxes and for non-residents - a withholding tax.

But it is still a better deal after deducting withholding tax. So, better put more in while you are still a student there :)

Simon said...

so is this FD actually recommended for us commoner singaporeans? i was thinking of putting some of my savings there. since inflation rate does not really affect me as i am living in singapore. thanks

Marvin said...

Assuming Australia doesn't impose capital controls, shouldn't arbitrage step in to nullify any excess return of one currency over another. Isn't that what the "carry trade" is about. Such that what is remaining is the risk premium for holding the currency.

In other words, high return=high risk.

As for the term "commodities-linked currency" show me a chart that shows a positive correlation between A$ and commodities prices? If such a chart doesn't exist, then such a term should not exist.

Maybe sgbluechip can comment since this is his field of study :)

sgfinancialfreedom said...

Very nice interest rates!

If only Singapore could have such rates.

I see that you are in Australia right now pursuing an exchange programme? Did you quit your job?

I have many questions to ask you =)

Sgbluechip said...

Hi Marvin, if you can find a bank willing to offer you a 5 year fixed loan of 5%, interest servicing only, then yes, you can enjoy the arbitrage.

As for tax, international students are not subjected to that.

Sgbluechip said...

Hi SFF, I'm on leave and will be back soon.

Wealth Journey said...

No withholding tax for students?
Hmm... I remembered seeing withholding tax on my interest earned while i was an international student there 4 yrs back :)

Anyway, good on ya mate! Get it while it's hot :)

Marvin said...

Hi Sgbluechip.

Why can't Singapore banks or financial institutions enjoy the arbitrage? After all, they can borrow S$ at SIBOR or is it SOR, change to A$ and deposit it for 8%?

Sgbluechip said...

Hi marvin, my guess is that there are capital controls and a corporate tax of 40% which brings down the interest to 4.8%. Besides, the rate is only available to retail depositors.

Another reason is that the ROE of banks are generally higher than 8%. So they would not want to invest in the 8% deposit. Though this is not a strong argument, since the personal loan rate is lower than 8%.

Marvin said...

A bank can easily get around the retail investor requirement by lending to their private banking customers and simultaneously getting the customer to pledge the deposit as security. Customer takes a cut, bank takes a cut. Win-win.

Since the fixed deposit is probably guaranteed by the government, it is virtually risk free especially if the legal structure allows the bank to be a secured creditor. And this is the point isn't it.... if the deposit is guaranteed by the govt, then the 8% is a risk free rate.

Alan said...

if a singaporean deposits his singapore dollar converted to australia dollar for the 8% interest rate per annum of the 5-years fixed deposit, at the end of maturity date, will the exchange rate cause a loss to him since he must convert the amount back to singapore dollar less any tax or legal fee impose? thanks.

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