Saturday, October 29, 2011

Is it risky to put bulk of savings in small, foreign banks?

On a previous post which I talked about my favourite bank account (CIMB StarSaver), a reader commented it was too risky to put the bulk of my savings into a small, foreign bank. It is safer to put our money in a big, local bank.

It may well be true that the bigger, local banks are safer. However, bear in mind that the first SGD50k of your deposit in any bank is guaranteed by the Singapore government (Deposit Insurance Scheme). So, to reap maximum interest gain on your savings without compromising safety, you should put at least SGD50k into the highest interest-paying savings account which tends to be the smaller, perhaps riskier banks. In fact, if you want to play safe, spread out your savings across several bank accounts, each not exceeding SGD50k. This way, most or all of your savings is under the protection of the Singapore government.

Another advantage of owning several bank accounts is that you can shift your savings around to whichever account pays the most interest. Banks love fresh funds and they punish loyal customers by giving preferential treatment to fresh funds. It pays to be disloyal customers to the banks, so you should play the game by shifting your money around to whichever bank offers the highest interest. Now and then, banks will come out with promotions to attract new deposits. Just put your money there until the promotion ends. Capital is mobile. Take advantage of its mobility and move it around to wherever yields the highest income. The first SGD50k is insured by the government and therefore risk-free anyway.

I am not too worried about putting most of my savings in a small, foreign bank. All the banks in Singapore I know of are listed on a stock exchange. This is useful because the stock prices provide useful information on the safety of the banks. In 2008, one could tell which financial institution is the next in line to fall just by looking at their stock price (who is falling the most and the fastest?). It is so much easier than reading financial statements. Due to personal limitation, I find banks' financial statements unanalyzable (much subjected to management discretion) and prefer to rely on their market price as a proxy to their safety. Unlike fraudulent S-chips, banks do not suspend trading or go bankrupt overnight. There will be ample warning signs in their stock prices and news media before they go belly up. The moment the stock price drops more than 10% on consecutive days, pull out your savings and get the hell out! Do ensure that a chequebook is available for the account which holds most of your savings so that you can transfer your money out as quickly as possible.

Some will accuse me of being irresponsible by dishing out advice that will cause a systemic failure in the financial system during a panic. Regulators who discourage such panicky behaviour may well be advising the same thing to their closest relatives in 2008. Don't blame me. Blame the design of the banking system. This is a weakness in the fractional reserve banking system. Once confidence is lost, even the healthiest and most prudent bank will fail.

Wednesday, October 26, 2011

Saving money by bypassing middlemen

Lucky Tan is one of the most insightful socio-political bloggers in Singapore. A lesser known side of him is that he is also a financial-savvy operator. Today, he made a post on how Singaporeans can save money by bypassing the middlemen. With his permission, I am reposting his article on my blog.


In the book Freakonomics, the authors did a study of prices of homes sold by property agents for their clients and compared it with the price of homes when the property agent is acting for himself i.e selling his own home. They found that the property agents sold their own homes at a price significantly higher than the homes of their clients. The property agents' interest is to earn a commission and to do that they try to make sure transactions go through by persuading sellers to lower their selling price and buyer to up their bid. Many Singaporeans are not aware of this but you can sell your home quite easily without a property agent - the paper work is relatively simple. My father sold his HDB more than 20 years ago without an agent and it is easier to do it now because of the Internet which enables sellers to put up ads for free at various websites. (here is a forum on people sharing their experience of selling their HDB without an agent amd HDB itself conducts a regular seminar on how to sell your home without an agent[Link].

If you walk around the town central of a HDB estate, say Toa Payoh Central, what you will see is one 2nd hand phone dealer after another. Sometimes within an area of 50 meters by 50 meters, you can count up to 20-30 of such small shops. They exist because new hand phones models are introduced by manufacturers every few weeks and your iPhone 4 becomes yesterday's model when the 4S is released. Singaporeans get rid of their old phones through these middle men. The other day I was standing by one of these shop and a young men sold his relatively new phone for $80 to the dealer. I was very familiar with the model as I was thinking of buying one for myself and it was changing hands in the bazaar[Link] at about $140 or higher. Without much hassle, the seller could have gotten an extra $60. People sometimes sell the stuff at Cash Converters or pawn shops because they need money quickly - the problem is they are actually throwing money away because they get far less than what they can get for their goods at a time when they need money badly. The lesson is not to get into a desperate situation when you have to "fire-sale" your belongings.The proliferation of pawn shops like Money Max [Link] perhaps tells us that more Singaporeans are getting into financial situations where they need cash quickly....and this is exploited by the numerous 2nd hand phone dealers, money lenders and pawn shops.

On History Channel, there is a TV show called Pawn Stars[Link]. The show follows the going ons in a Las Vegas pawn shop operated by a family. Given the subject matter, the show is surprisingly successful and has a large following since its debut in July 2009. The show sometimes gives you a hint of the economic malaise in USA as some of the people were pawning away their family heirlooms passed from one generation to another to make ends meet. People were selling their belongings to raise money for medical treatment, rent and so on. The Harrison family running the pawn shop makes a good living buying and selling....they are all overweight from sitting around in their shop's a clip from the show:

A woman walks into the pawn shop asking $2000 for a Fabergé brooch. Mr. Harrison being a man of conscience knowing the real value of the brooch offers to buy it for $15,000. The truth is this :if the brooch is genuine Fabergé , it is worth something in the region of $80,000-$250,000. Either the woman walked in with a fake and cheated the pawn shop or the pawn shop just made something like $100K from a $15K sale. So even a middle man with conscience like Rick Harrison of Pawn Stars is not averse to making excessive profits off people who are ignorant and too lazy to double check the value of what they are selling. Next time think twice before you go to a middle man to sell something specially if you don't know how much it is worth!

Even if you are rich and don't need to squeeze every dollar from the 2nd hand stuff you're selling, you might want to consider selling it direct to're doing a favor for them and yourself. If your price is good (still higher than what you can sell to the middle men) many buyers are willing to drop by your house to pick it up and that is more convenient than bringing it down to cash converters or to a 2nd hand phone dealer.

Websites on the Internet where you can offer your 2nd products for sale:

EBay :
Hardware Zone: Market Place :
Phing :
Gum Tree:

Saturday, October 22, 2011

Favourite bank account in Singapore - CIMB StarSaver account

Starting 14 Oct 2011, Singapore's largest banks DBS and POSB are cutting savings interest rate for the first SGD100k from near zero(0.125%) to almost zero (0.05%). (Source) It cannot get worse.

Don't be too quick to condemn the bankers as greedy and all out to squeeze profits out of small depositors. Big banks like DBS/POSB which are flushed with cash deposits are not as keen to attract more deposits as the smaller banks. Understandably, too much cash can be burdensome to the banks if they are not able to allocate the huge cash deposits into investments with returns that beat the savings rate. Therefore, it is a win-win situation that we depositors allocate more of our savings to the smaller banks who not only offer higher interest rates but also do a better job at putting our savings to better use because capital allocation is easier when capital size is smaller.

Currently, my favourite bank account is the CIMB StarSaver account. It simply beats the competition hands-down. It is a no-brainer to open this account with CIMB. The lowest savings interest rate start at 0.5% which is already 10 times more than DBS's 0.05%. Depositors enjoy up to 0.8% rate if they make regular deposits of SGD500 monthly. Please go to the website for details.

There is no fall-below fees and no minimum deposit requirement unlike most other bank accounts I came across.

Another feature that makes it superior are the free cheque books provided. The other banks I know of charge SGD2 a month (SGD24 annually) for maintenance and SGD15 for each new cheque book. If someone knows of a better deal, please inform me. A cheque book is a necessity for people who need to withdraw substantial sums of money from time to time. These are usually the people who make their own financial investments.

With the highest savings rate and the free cheque book, I keep the bulk of my savings in CIMB StarSaver account.

There are disadvantages with this bank account to take note. CIMB has very few ATM machines and only 2 branches in Singapore as of today. So, it is not convenient to withdraw money and do face-to-face banking with them. You can still do internet banking with them. To work around this problem, I put the bulk of my savings with CIMB but keep a smaller amount of money in the local banks to make use of their vast network of ATMs and branches. On this aspect, our local banks are superior to the foreign banks in Singapore.

Picking the right Valentine. A much more difficult task than picking the right stocks

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