A "foreign" chest for emergency funds.

I wrote about the importance of having an emergency fund before and how it should be locked away. I also explained why I park my emergency fund in fixed deposits.

My preference has, thus far, been to park the money in UOB fixed deposits because I have a relationship with them and it is convenient for me. I simply have them deposit the principal plus interest into my UOB savings account upon maturity of the fixed deposits.

With the foreign banks, I have to tell them to send me a cheque (and make sure they do it) or to visit them to withdraw the money when the fixed deposit matures. So, although the foreign banks have been pretty aggressive in offering higher interest rates for fixed deposits, I didn't bother with them.

Apart from the perceived lack of convenience, was there any other reason why I didn't accept the many offers of higher interest rates from the foreign banks? Well, I just didn't think that the difference in returns is meaningful enough to compensate me for any inconvenience.

So, for example, Standard Chartered Bank is currently offering 1.25% interest per annum for a 15 months fixed deposit and 1.15% per annum for a 8 months deposit. This compared to 1.08% per annum for a 13 months deposit offered by UOB. The difference is 0.07% to 0.17% in interest rate per annum. Doesn't look like a big deal, right?

However, using the same argument I used before in comparing the interest rates for the CPF-SA and the CPF-OA, 0.07% is actually 6.48% more than 1.08% while 0.17% is 15.74% more!

So, although in absolute dollar terms, for a $100,000 fixed deposit, the difference over a one year period is only between $70.00 to $170.00 and does not look like a big deal, I convinced myself that it sufficiently compensates me for the effort to visit the bank upon maturity of the fixed deposit next year. For a bit of work, it is probably worth it.

Related post:
A special chest for emergency funds.