I invested in a structured deposit (SD) from UOB on 9 March 2015. This is my second SD. The first one was OCBC Interest rate linked SD. (A write-up was published on 10 October 2013.)
Let me start by saying that structured deposits carry risks and are not suitable for all investors. These SDs are not fixed deposits of banks and are not covered by Deposit Insurance.
UOB SD 2015 Series (1) has a maturity duration of close to 6 years from 9 March 2015 to 9 February 2021.
Payment of interest is yearly as follows:
Interest rate for Year 1 is 1.88% p.a.
Interest rate for Year 2 is 1.88% p.a.
Interest rate for Year 3 is 1.88% p.a.
Interest rate for Year 4 is 1.88% p.a.
Interest rate for Year 5 is 1.88% p.a.
On the 6th year, interest rate is a minimum of 0.5% or 3.00% p.a. depending on the Payment Condition being met.
If assuming the Payment Condition is not met, investors still get 0.5% interest on the 6th year. With this final interest amount and the previous interest rates over 5 years, the minimum effective interest rate is 1.6784% p.a. (on the assumption that the SD is held to maturity)
To be able to get 3.00% interest on maturity date, the following condition must be met on 2 Feb 2021.
|Company||Initial Price (9 March 2015)||Closing Price 2 Feb 2021|
|DBS||$19.73||At or above $19.73, and|
|Global Logistic Properties||$2.55||At or above $2.55, and|
|Keppel Corp||$8.75||At or above $8.75, and|
|Singtel||$4.11||At or above $4.11|
Looking at current prices of these counters, one wonders whether in 5 years time (2021), share prices can surpass the Initial Prices.
|Company||Current Price (6 May 2016)||Change from Initial Price|
|Global Logistic Properties||$1.81||-29.0%|
It looks like I can end up with just the minimum interest rate of 0.5% p.a. on maturity date. The effective interest rate on this investment could be just 1.6784% p.a. and I must hold onto the structured deposit till maturity as not to suffer penalty on early withdrawal.
As I said before, structured deposits are not for all investors. With that kind of return, there are other investments that can offer better return.
Copyright © 2016, limkimtong for Living Investment
The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.