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Savings account interest rates have taken a hit. How does this affect you?

The sudden slashing of interest rate by the US Federal Reserve has shrouded Singapore banks in financial distress. This unprecedented move by the US FED Reserve since the 2008 financial crisis pushed the banks to reciprocate by cutting its interest rates.

Many individuals and banks themselves are adversely affected by the slowdown in economic growth and a looming uncertainty in the financial world. There has been huge impacts on global demand and supply chains. 

As it is, many big-name banks have revised their interest rates, namely DBS, UOB, OCBC and Standard Chartered. UOB’s interest rate has reduced the most drastically amongst the four banks. What does this mean for all of us, including the individuals and businesses?

Major changes to savings account interest rates

The above example is using the base case of someone having a monthly salary credit of $3,000 and a credit card spend of $500. Depending on your financial situation and which savings account you use, the impact may be different. 

The adjustments in interest rate has seen nearly all banks slash their rates. The DBS Multiplier has had interest rate slashed from 1.85% to 1.6%, the UOB One Account has dropped a staggering 1% from 1.5% to 0.5%. The OCBC 360 has had a fall of 0.2% from 0.6% to 0.4% and SCB Bonus$aver has had their interest rate cut from 1.88% to 1.5%.

Significant revision in earnings for DBS, OCBC, UOB

DBS is expected to reduce its profits and dividends by 8%, taking the biggest hit among other banks. The same goes for OCBC and UOB too, their cuts amounting to around 4% and 5% respectively. Fitch Solutions has also predicted a loss in Singapore banks’ loan growth. This will be adjusted to 1.5% in 2020, a decrease from 3 per cent last year.

With actions follow corresponding consequences as earnings and incomes of the individuals and banks dwindle. A cut in dividends means that ordinary shareholders would be at a risk of having their dividends reduced or completely axed out, depending on the severity of the reduction. 

Savings of the individuals will be reduced too. If you are a DBS Multiplier Account holder, you may no longer earn bonus interest on your dividends and the dividends will now be categorised as ‘income’  instead of ‘investment’.

How can you recover 

While the change is inevitable, you can fortify your finances using a few ways. One way is to invest in preferred dividends that are of fixed income. You can also diversify your portfolio by investing in bonds and defensive stocks to secure lower interest rates.

Alternatively, you can keep an eye at savings insurance plans that will provide you with a fixed interest per annum. This way, you will get a guaranteed return without having to worry about reduced savings. 

If you need more assistance with your financial planning and savings, you can reach out to us here: [email protected]. You can also WhatsApp us at +65 8750 0688 to arrange for a teleconsulting call to know more about what plan is the most suitable for you.

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