Published April 9, 2009

Banking on an interest rate play

By offering higher interest rates, foreign banks are drawing in deposits

By SIOW LI SEN

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(SINGAPORE) There was a time when people were almost embarrassed to admit that they were earning only 1.5 per cent on their money.

Not any more. In the present economic climate, savers are chasing after every sliver of interest, making a beeline for foreign banks which offer higher rates, and ignoring the blemished reputations of institutions caught in the financial debacle.

Observers say this is because of the blanket guarantee that the Singapore government has given to deposits until end-2010, a stand that has given comfort to savers.

'Lots of people do that - move money from bank to bank - for people who don't want to invest any more because they're shell-shocked,' said one high net worth former client of Royal Bank of Scotland (RBS).

She had closed all her accounts at troubled RBS last October and moved to a local bank, but said in hindsight that there was no need to have done that especially with the government's deposit guarantee.

RBS, now 68 per cent owned by the UK government and selling its retail and commercial banking business in Singapore, in the meantime continues to garner funds with its promotions.

In February, RBS posted the biggest loss in British corporate history at a staggering £pounds;24.1 billion (S$53.6 billion).

Ajay Mathur, RBS head of retail banking Singapore, said the bank has 'seen a strong inflow of funds to the tune of hundreds of millions in the last one month from depositors and investors since we launched the promotional interest rates on RBS Millenium account'.

'The attractive returns compared very well to other offers in the marketplace. Indeed, we have acquired funds not only from existing clients but also from a significant number of new clients, whose contribution amounted to approximately 20 per cent of the total inflow,' said Mr Mathur.

RBS Millenium's promotional interest rates, which offer interest rates as high as 1.54 per cent for top-up or new funds of $500,000 and above, ends on May 31. The promotion began in February. The attraction here is that RBS Millenium account operates as a regular current account where funds are not locked in to enjoy the high interest rate.

Usually, current accounts pay nothing or next to zero on outstanding balances.

'The man in the street is pretty hard-nosed about that quarter per cent,' said Lim Jit Soon, Nomura Securities' head of Asean equity research.

Not to be outdone, Standard Chartered used its 150th anniversary to offer a short promotion lasting not quite two and a half months of 1.50 per cent on its e$aver Account if clients put in additional funds. And if customers open a current account called XtraSaver Account, they get 2 per cent interest on their e$aver Account. The promotion ends this month.

Dennis Khoo, StanChart Singapore's general manager, retail banking, said the bank's latest promotion, which bundles the e$aver and XtraSaver accounts, gives customers one of the best interest rates in the market and greater transactional convenience.

'This campaign has resulted in double-digit growth in outstanding balances for e$aver accounts to date,' said Mr Khoo.

StanChart's customer deposits grew 60 per cent in 2008 to US$32.16 billion.

CIMB Singapore, in less than three years, has grown its loan portfolio to more than $1 billion, while its deposit base is slightly higher, thanks to aggressive savings rates, BT reported earlier this month. Its 1.8 per cent per annum Sing-dollar promotional fixed-deposit savings plan has attracted substantial deposits - so much so that the rate has been cut to 1.7 per cent.