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Is 2.02% interest attractive? It depends.

Thursday, September 28, 2017

Reader:
Good day, have been reading your blog for few month. found many useful tip . esp the CPF sa. should have transfer once hdb loan paid off. 😞 

Would like to ask for your view on an endowment plan which is 3year at 2.02%per year. It stated protected under Singapore Deposit Insurance. Thanks for your time.








AK:
2.02% interest per annum for a lock in period of 3 years is unattractive to me. Liquidity is important to me as an investor.

Unlike a fixed deposit where the only thing we give up is the interest if we should break the deposit, premature termination of insurance policies is usually punitive and we might not recover all our money.

For a lock in period of 3 years, the interest rate offered would have to be much higher. Otherwise, I would rather settle for a lower interest rate offered by some banks for fixed deposits (e.g. 1.55% p.a. for a 2 year FD) and retain some flexibility.







Even if you are not an investor, if this is money from your emergency fund, this would not be a good choice as money in such a fund should be something you can get at immediately without delay nor suffering a loss.

If you are not very savvy when it comes to investments and the money to be put away is merely extra money on top of your emergency fund (i.e. liquidity is not a major consideration), then, this might be something you could consider.

You might be interested in related post #1 below and take note of the 6 points mentioned when it comes to buying insurance.

If you are 55 or older and a CPF member, you might be interested in related post #2 below.

Related posts:
1. Sumiko Tan's expensive lesson.
2. Use CPF as a savings account.

2 comments:

Laurence said...

Similar to my comments in your post titled "Is this ILP good for my mother dated 17 Sep17:

Am I the only one who thinks that some policies sold by insurance companies nowadays are bordering on ridiculous, maybe even downright absurd?
I can't see why anyone would feel a need to buy any policy similar to the one below, not to mention bestowing a big bonus to the agent in the process:

http://www.businesstimes.com.sg/consumer/great-easterns-3-year-205-endowment-plan-selling-well-company-official

AK71 said...

Hi Laurence,

To be fair, this endowment product could be a good thing for some people and I said as much in the blog. :)

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