I received a notification that my 18 months fixed deposits are maturing.
Time really flies.
Seems like it was only recently that fixed deposits were paying as high as 4.2% p.a.
Well, a quick check tells me the highest interest rate I can get now from CIMB is 3.3% p.a.
This is also for a much shorter 3 months tenure.
The interest rate falls to 3% p.a. if we choose a 12 months tenure.
This is probably because every institution is factoring in interest rate cuts towards the end of 2024 and also in 2025.
The news is that the ECB will cut interest rates before the FED.
This is good news for interest rate sensitive risk assets like REITs, for sure.
So, what am I doing?
Like I shared in a recent blog and YouTube video, I maintain $250K in my emergency fund.
I park the money in fixed deposits.
I will continue to do so.
I would do this in batches of $20,000 because if I had to use my emergency fund, breaking smaller sums will avoid losing too much in interest income.
So, if I had $100,000, I would break that into 5 fixed deposits with $20,000 each instead of having a single fixed deposit with the full $100,000, for example.
It could even be 10 fixed deposits with $10,000 each.
This explains what you see in the photo below:
Anyway, this is just something I am comfortable with and it makes sense to me.
All of us have different circumstances and beliefs.
As long as we are maintaining a meaningful emergency fund that suits our circumstances and as long as we are able to access it reasonably quickly, we should be OK.
If AK can do it, so can you!
Hi AK !
ReplyDeleteWow ! Learnt something again from you. Never thought of breaking my FD into smaller tranches in case i need to break them. Makes sense since placing FD has no service charges as well unlike maybe Tbills. I think some bank have charges for Tbill placement.
Thanks for always providing such tips !
Smallsteps
Hi Small steps,
ReplyDeleteIt makes perfect sense to me to have my emergency fund in fixed deposits and in smaller tranches.
Of course, not everyone likes this method. ;)
i love it !
ReplyDeleteHi Small steps,
ReplyDeleteI am happy you are happy! :D
Long time stalker of your blog, tried to email you about some thoughts about banks but didn't notice that your Contact AK button no longer working.
ReplyDeleteIt is about some thoughts that I have that made me extra careful about banks. Didn't mean for it to be out in the public in case it is not so appropriate, but due to limited word count + cannot find your email, don't know how to get to you.
Haha.
In a nutshell, I sold out of banks around the awhile ago and yes I did miss out on the gains.
However, the reasons why I sold out is because for the NII (Net Interest Income) part, local banks has done well due to high interest rates and some other good geopolitical and macroeconomic factors. I felt it was more of the tide came in and lifted them up instead of them growing that much taller.
As for the non-NII part, I see increasingly huge competitions from new technology and fintechs such as Moomoo, Tiger, YouTrip, Revolut etc that are taking so much market share from banks. Customers have more options nowadays.
Blockchain technology is also coming on strong. Customers can now look towards onchain solutions for cash management products. Blockchain can also reduce transaction costs, thereby, reducing profits for banks. Customers have more options nowadays.
Although our local banks are now trading a low PE ratios, I wonder if the "E" will be impacted if interest rates reduces and Fintechs/Blockchain industry matures. I do not doubt that banks will still take a huge part of the market share, I am just unable to gauge the size of the pizza left.
My email was longer, but well, couldn't fit in here, just sharing some thoughts in case it is useful to you.
Hi HL,
ReplyDeleteApologies for the tardy reply as I was taking a break from social media.
I made a video about it a few days ago:
AA REIT! T-Bill! SSB! CPF! UOB! OCBC!
You will find me talking about the banks too and why I am staying invested.
For sure, no one has a working crystal ball but I see our banks as being very forward looking and the digital banks as having a very steep slope to climb.
I said this many years ago when readers had doubts as to whether our local banks would still make good investments with digital banks coming in.
Anyway, your comment is not inappropriate at all as it provides pertinent considerations for all who are thinking of our local banks as investments. :)