Some extremely risk averse non-investors simply put their money in the bank, earning meagre interest rates, would have lost money even if they did not try other ‘riskier’ instruments. Even the Citibank stepup account that promised up to 2% for deposits if you keep increasing the amount in the bank each month had changed their projects by reducing the percentage by a great deal. So far, only Fairpriceplus.com promised a 1% flat rate as they do not have a retail outlet as the operations are mainly online.

For such risk averse non-investors, they would be better off putting their money into money market funds. Money Market funds simply have economies of scales and they get higher interest rates that only apply to big amounts that the normal savers do not have.

For those who believe in fixed deposits, the amount is still not good enough. Some may try foreign currency deposits, since NZ currency interest rate is quite high, just like the Australian dollar.

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When I went to the bank finally, the bank teller told me that I would not get any extra interest for the one month that I had left my money there. They require at least three months before they would pay the extra interest. While the amount I had put in was not that much, it was still good money that could have been earned.

I know that some banks allow automatic renewal, and interest would be paid even if the customer does not take the money out immediately.

Anyway, the current interest was really low, so I took my money out and set up a new account at another bank. Previously, when the banks were fighting for money and offering great interest rates, you could just tell them you were taking the money to another bank because they offered better rates, and they would do anything to keep you as their customer.

I guess people with more time on their hands and more money with them tend to put shorter term deposits so that they do not have to wait for a long time to take the money out.

Sarah Tan – SingaporeProfit.com

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The NZ government does not want to hurt the exporters, but with the increase in dairy prices, they are still doing well.

According to Bloomberg, the NZ finance minister has said that the NZ dollar has reached its peak and will continue to decline. This does not look very good because the high percentage in interest rates may not offset the fall in the value of the NZ dollar, when it is sold against the Singapore Dollar. Thus, you may want to reconsider buying NZ dollar now if you had not earlier done so.

Currently, the key rate for NZ dollar is 8.25%, which is at a record high. Based on this, it is a little puzzling that the interest rate at the bank is not as attractive.

Given the uncertainty of the NZ dollar, the breakeven rate is S$1.13. Currently, DBS offers it at $1.15, which is lower than it was at its peak. Hence, if the NZ dollar falls beyond that, it might be wiser to keep the fixed deposit in NZ dollars until it increases again, unless it falls beyond what you have bought the dollar at.

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My colleague used to give free financial talks to the rest of the staff, just to introduce some tools to them. However, there are a number of people who are resistant to the idea of investing, simply because they know of people who had their fingers burnt before, or they think they don’t have money to start.

I wanted to introduce a simple cash fund at Fundsupermart to my colleague, just so that she can earn 1.5-2% more than what her money was earning in her savings account, and even then, she was very resistant to the idea. She would not even hear of buying unit trusts. Initially, the rates were ok, but they had been steadily dropping, which suggested the low interest rates at major banks. After a long talk, she was a little more open to the idea of that, but changed her mind when she saw how the rates were dropping. This particular cash fund had a risk factor of zero, which means that she would not lose a single cent if she were to put her money here, compared to other unit trusts which had higher risks. The only current drawback is that CPF interest rates are higher at 2.5%, so for those who put their CPF money here, they would be at a disadvantage.

Another person I talked to was keen to invest in shares, but his excuse was that he did not have spare cash. If this was a problem, he could use CPF since he did not have to pay for his house. Yet another person I talked to gave the same excuse that she wanted to invest, but did not have the spare cash.

I don’t understand why some people are so resistant to the idea of investing. There are many forms of investments with very low risks. Perhaps it is the same with insurance; too many people are put off by the idea of buying insurance, even though insurance helps people out in times of crisis. Perhaps with education, everyone will be able to decide on the tools better.

To ensure financial freedom, one should have a roadmap of what he or she envisions in the future, and then actively works towards the goals.

Sarah Tan – SingaporeProfit.com

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