FD or T-bill? 3.8% p.a. fixed deposit for 5 months tenor!

A few days ago when I logged into my DBS phone app, a message popped up with a special offer.

3.8% p.a. fixed deposit for 5 months tenor.

What?

It was like discovering an endangered species.

I have always thought DBS has the most liquidity sloshing around with the most CASA (i.e. current account and savings account) money from customers amongst the local banks.

DBS has benefitted immensely from cheap funding from relatively conservative POSB customers.

DBS has also routinely said that they were extremely well capitalized.

Are they feeling the heat now or are they making a pre-emptive move to lock in some liquidity?

Whatever the case may be, it isn't my problem.

My question was: "What to do?"

In my last blog, I expressed my disappointment that the cut off yield of the 6 months T-bill was only 4%.

I also expressed my disgust at people who made very low bids in order to get all the T-bill they applied for as that probably resulted in a lower cut off yield.

The problem with T-bill is that we won't know what the yield is until the auction is over.

Could the cut off yield be lower than 4% this time?

Yes, another T-bill auction is now open.

Could the cut off yield, heavens forbid, be even lower than 3.8% this time?

Like I said in my last blog, I suspect it would depend on how competitive (and inane) people get.

This is especially the case with people using their CPF-OA savings which are akin to elephant guns to apply.

I understand that it is costly both in terms of time and money to use CPF-OA savings to apply for T-bill. 

If these people do not get their applications fully filled, it would mean another trip or a few more trips to the bank.

Using CPF-OA funds is costly not only because there is an application fee and a monthly service fee, we will also lose out on one or two months of CPF-OA interest at 2.5% p.a.

This is because CPF-OA interest is calculated on a monthly basis and not a daily basis.

So, if we withdraw money from our CPF-OA at the start of the month, we will not have interest income for one month.

If we withdraw money from our CPF-OA in the second half of the month, we very likely would not have interest income for two months. 

This is because when the fund comes back from the T-bill, it most likely would not be credited into our CPF-OA in the same month but the following month.

CPF interest is calculated based on the lowest monthly balance. 

So, having the incoming fund credited in the following month means no interest income for that sum in that month.

Therefore, if we are unsuccessful in a T-bill auction using CPF-OA savings, it is painful in more ways than one, especially if the amount of money involved is relatively large.

I can understand why these people are more kiasu than others.

Still, I want to apply for this round of T-bills because the yield could be higher than 3.8% p.a.

At the same time, I also put some money in the fixed deposit special offer by DBS.

In case you are wondering, the special offer is for a minimum sum of $20,000 while the minimum sum required for T-bill is only $1,000.

If you are interested in the special offer by DBS, use their banking app to start a fixed deposit account.

Their promo code for this is SR7M.

Related post:
4% yield T-bill 3x oversubscribed. What is my plan now?