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Reader says...
Recently, an agent came to me asking me I should get a saving plan.
As she said that people can invest fearlessly is becos they have a saving plan (safety net) if anything to happen, there's still a saving account.
The saving plan is like pay for 5 years then after 15 years can take the money out with interest.
She says the money can be used for my baby education funds or my personal funds after 15 years.
What r your thoughts on saving plans?
AK says...
What is the guaranteed return?
See for yourself if it is worthwhile.
As a guide, Singapore Savings Bond (SSB) pays 2.16% p.a. guaranteed if held for 10 years.
This is a AAA rated sovereign bond.
So, this savings plan which the insurance agent is trying to sell to you must return much more than this to make it worth considering.
1. 15 years is a long time to hold. You will be sacrificing liquidity for a very long period of time.
2. Insurance company is not a AAA rated country like Singapore.
If you want a similar safety net, locking up some money in SSB for 10 years could be the answer. 🙂
(Unlike a savings plan from an insurance company, you will not suffer any monetary loss for early withdrawal for SSB although the returns would be lower if not held for 10 years.)
15 years is a very long time and in that time, there could be a stock market crash (or two) and I would rather have more money to invest with.
So, with this consideration in mind, putting the money in SSB is a better option for me. 🙂
To be fair, such products (i.e. savings plans) are useful to some people.
These people probably have lots of spare cash and are probably not interested in investing in stocks or hard assets.
These people might not be financially savvy and just want somewhere relatively safe to plonk their money.
If you are financially savvy, buy term and invest the rest. 🙂
Related posts:
1. Insurance weakened family's balance sheet.
2. 2.02% interest attractive? It depends.
3. Singapore Savings Bond good or not?
See this month's Singapore Savings Bond: HERE.
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