Endowment Insurance, Insurance

What should you do when banks slash their interest rates?

COVID-19 has hit us hard – financially. Just this month, UOB and DBS have joined the growing slew of banks that have reduced their interest rates. Below is a list of the latest interest rates after the latest round of adjustments.

*Accurate as of 7 July 2020. Realistic Total is calculated based on the base interest rate and bonus for salary crediting.

Gone are the days where you can enjoy a 2% interest in your saving accounts.  

How does this impact me?

Well, a reduction in interest rate would mean that you would get a lower return from your savings. For starters, if you have $20,000 in your savings account and the interest rate is lowered by 0.05%. With the effect of compound interest, you will lose approximately $100.23 in saving PER YEAR

$100.23 may not seem like much now, but look at it from a bigger picture of 10 years. You’ll be losing out on a lot more than you realise!

What are the alternatives?

Long Term Endowment Plan

A good alternative to consider would be an Endowment Plan, such as the four policies shown in the table above. They are generally considered low-risk investments which provide a higher return rate than traditional saving accounts. For a 10 years Endowment plan, the return rate can go up to 4.75% per annum.

Short-Mid Term Endowment Plan

If you’re looking for a more flexible option that spans across shorter duration, ELASTIQ* is a good alternative to consider. The guaranteed crediting rate per annum stands at 1.80% for the first 3 years. Earn interest on a monthly basis according to prevailing market rates from the 4th year. You will also enjoy an additional 0.3% as a loyalty bonus every 3 years if no withdrawal has been made. 

Comparison Example

Assuming you have $20,000 in your bank account. The table below shows the difference in potential returns* from the principal sum compounded monthly over a 10 year period.

*Accurate as of 7 July 2020. Figures are based on projection – actual figures may differ.

Why PolicyPal? 

PolicyPal is a licensed digital financial advisory firm, Asia’s leading life insurance platform providing personalised financial review and action plan to help you reach financial freedom. With our platform, you can find tailored and unbiased financial advice from licensed experts.

If you haven’t already, check out our article on the best endowment plans. Look at comparisons across different endowment plans and find out which suits you best.

To find out more, schedule an appointment with PolicyPal to start your planning below

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