WHERE TO PARK YOUR CASH

WHERE TO PARK YOUR CASH

STOCK prices are languishing, commodity markets are risky, property is not for small investors, and funds and unit trusts don't look good either. Where can ordinary S'poreans park their money safely, and still earn more than the lower-than- 0.3per cent interest from savings accounts? Experts highlight three lower-risk investments.

HOUSEWIVES love FDs because they are an almost risk-free investment. The problem is that its yield is low.

21 July 2008

HOUSEWIVES love FDs because they are an almost risk-free investment. The problem is that its yield is low.

Banks here offer a 0.9 per cent interest rate for those who park their money with them for a year.

This means that every $10,000 will earn only $90 of interest.

Mr Chong Kok Peng, manager at financial advising firm New Independent, said that at this rate, the interest income is not even enough to cover inflation, which hit a record high of 7.5 per cent here in April.

But quite a number of depositors do not know that FDs need not be in Singapore dollars.

They can also convert their cash into foreign currencies and then put the money into 'foreign' FDs, which could earn significantly higher interest rates.

For instance, an Australian dollar FD now earns 7.6 per cent, while the New Zealand dollar earns 7.9 per cent.

That means every A$10,000 ($13,100) earns interest of A$760 after year.

But there is some risk though - if the currency falls against the Singapore dollar, then earnings will look less attractive when converted back to Singapore dollars.

Mr Wong Weiyi, analyst at investment solutions company Fundsupermart.com, said: 'The investor benefits only if the currency does not fall substantially by the time the FD matures.'

Of course, if the currency rises, deposits enjoy a double bonus of capital gain and higher interest rate.

THESE are similar to fixed deposits, except that, instead of putting in a lump sum at the start of the period, you deposit a fixed amount every month.

Surprisingly, this can yield higher earnings.

For instance, OCBC bank's 24-month lump-sum time deposits pay 0.925 per cent. But setting aside a minimum of $800 each month with the bank for the same time period will earn you more - 1.28 per cent.

The monthly investment means less upfront money is required. This could be useful for investors who have a regular income but no excess cash on hand. Such accounts also help in cultivating the good habit of saving up a portion of one's salary.

SOLD in $1,000 denominations, these low-risk bonds issued by the Government can pay up to 4 per cent on 20-year bonds. Two-year bonds yield 1.24 per cent.

Investors do not have to wait until the bond matures. They can buy and sell them in the bond market, based on current market prices.

There is little risk of losing your capital, Mr Wong said.

But the risk is higher for bonds with longer maturities, due to uncertainty over oil prices and interest rates, which in turn affect bond prices, Mr Chong from New Independent said.

Elgin Toh, newsroom intern.


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What 's behind the latest jitters

ON 11 Jul, California-based IndyMac Bank was taken over by government regulators, as the bank was unable to cope with a run on its deposits.

IndyMac, the seventh largest American mortgage lender, is one of the largest banks to fail in US history.

Driven by panic, depositors withdrew as much as US$100 million ($135,000) of deposits a day.

Two days later, bad news hit Freddie Mac and Fannie Mae, two institutions set up by the US government to encourage home ownership.

Since the mortgage loans that the two institutions are exposed to make up half of all home mortgages in the US, their failure is likely to result in massive credit tightening that will spell disaster for global business.

The government has since intervened to prevent such an outcome, by ensuring that more government loans flow to the two institutions to prop them up.

The uncertainty spooked many investors around the world. In Singapore, the Straits Times Index plunged 2.5 per cent onTuesday to a four-month low.

Federal Reserve chief Ben Bernanke has assured Americans that the two firms are in 'no danger of failing'.



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