OCBC is promoting this structured deposit (SD). It is not a plain vanilla time deposit. It is interest rate-linked. Duration of SD is 5.5 years.
Payment of interest is half yearly as follows:
Interest rate for Year 1 is 1.20% p.a.
Interest rate for Year 2 is 1.30% p.a.
Interest rate for Year 3 is 1.40% p.a.
Interest rate for Year 4 is 1.60% p.a.
Interest rate for Year 5 is 1.80% p.a.
Interest rate for Year 6 is 2.00% p.a.
Minimum principal amount is $5,000 with multiples of $1,000.
OCBC holds the right but not the obligation to unconditionally early terminate the SD at the end of an interest period. In other words, OCBC can technically terminate this SD after half a year from start.
Assuming the SD is allowed to run for full 5.5 years, the internal rate of return works out to about 1.50% per annum.
There is pre-mature withdrawal fee should depositor withdraws any time before the full 5.5 year term. Besides this, there are other risks such as issuer risk, market risk, tenor risk, reinvestment risk. SD is not covered by Deposit Insurance.
This SD is structured for cautious investors. The interest rate is better than time deposit in current low interest rate environment. At 1.50% p.a. internal rate of return, there are other financial instruments that offer higher returns. If an investor does not need the money for 5.5 years, this SD can be an option which is better than time deposit, interest rate-wise. We are not certain about interest rate environment in the future so our guess is as good as the Bank’s.
The period of promotion of this SD ends 22 October 2013 with deposit start date at 29 October 2013.
(Note: I have no direct pecuniary interest in writing this post.)
Copyright © 2013, limkimtong for Living Investment
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