4 year SGD Interest Rate Linked Structure Deposit

My wife showed me a brochure of the above structured deposit from a local bank. It comprised of 9 pages of detail. I told her not to invest in any complicated structured product, as she may not be aware of a catch.

The structured deposit offers an interest rate of 1.2%, 1.3%, 1.4% and 1.5% during the 4 years respectively. It gives the bank the option to call back the deposit at any half year period. The investor stands the risk of being locked up with the low yield if interest rate increases and the risk of being redeemed if interest rate drops further. There is no way that the investor can estimate the chance of either event. This structured deposit is not covered by the Government guaranty on deposits. There is a risk of total loss, in the event of failure of the bank. While this is small, the paltry yield does not merit it.

It is better for the investor to buy a government bond which will probably give the same yield with lower risk. It is a neater arrangement.

I hope that our banks and corporations will issue a straight forward corporate bond with a yield that is higher than government bond, and avoid all the complicated structures and options.

Tan Kin Lian