Bank savings earn less interest as key rate plunges

April 7, 2008

Bank savings earn less interest as key rate plunges

Banks trim rates on deposits as they struggle to maintain margins

By Gabriel Chen

SAVERS are again feeling the pinch as interest rates continue to fall, further squeezing what meagre returns they might get on bank deposits.

Citibank, Maybank and Standard Chartered Bank (Stanchart) have all trimmed rates for their high interest savings accounts given the fall in the rate banks pay each other to borrow cash.

This rate - the Singapore Interbank Offered Rate (Sibor) - hit a 12-month low of 1.25 per cent last month. It has fallen steadily from 2.88 per cent a year ago, and economists say it will drop further.

With their own margins under pressure, banks have responded by trimming rates for customers.

Maybank has cut rates for iSAVvy, an online savings account, from 1.08 per cent to 0.88 per cent a year for a daily balance of $5,000 to $50,000.

Stanchart's rate for its eSaver online savings product is 1.08 per cent a year, down a tad from a month ago when it paid 1.2 per cent for deposits from $50,000 to $199,999.

The base rate for Citibank's Step-Up Interest Account - it pays progressively higher rates as the monthly balance increases - has fallen by more than half to 0.3 per cent a year.

Mr Robin Chua, the head of deposits at Citibank Singapore, said the revised rate of 0.3 per cent is competitive compared with rates for other typical savings accounts.

'The maximum Step-Up interest rate, at 1.2 per cent a year, is actually in line with what the industry offers on a Singdollar, 12-month time deposit,' he added.

DBS Group Holdings, United Overseas Bank and OCBC Bank have also adjusted some of their fixed deposit rates downwards.

For instance, the three banks recently lowered their 12-month fixed deposit rate for amounts between $50,000 and $1 million to 1.2 per cent a year from 1.4 per cent earlier this year.

The leaner interest rates have prompted some consumers to shop around for the best offers in town.

Client servicing staff Mak Wei Jiat recently closed her eSaver account at Stanchart and moved the money to a Maybank iSAVvy account.

'It may be only a small change in interest rates, but it can add up to a lot when you're factoring in a big sum,' she said.

IT operations manager Calvin Chin said with inflation climbing and interest rates declining, he will be earning less on his savings.

Meanwhile, with the share market so volatile, people like himself will be cautious about committing themselves to risky investments.

'For the man in the street, besides keeping cash at home, the option available to him is to continue to keep savings in a bank,' complains the unhappy 38-year-old.

Economists believe saving rates here could head lower in the near term, partly because of interest rate cuts in the United States and a strengthening Singapore dollar.

'We think Sibor will trend below 1 per cent by the second half of the year, and stay low for a while,' said Stanchart economist Alvin Liew, who also believes the US will be in for a protracted recession.

OCBC Bank economist Selena Ling feels any turnaround in Sibor is likely to come only when there is greater clarity over the US recession, what end-point the Federal Reserve sets for its rate-cutting cycle and what monetary policy expectations Singapore's central bank has.

gabrielc@sph.com.sg

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