Category: Interest Rates

Low or no interest? Where to park your funds?

On By RistrettzIn Interest Rates, New Ideas, Personal Finance Series1 Comment

Due to the current covid-19 pandemic, we have seen quite a change in the world’s economic situation. Central banks around the world have reduced interest rates to an extremely low level. In finance, or what we call an emergency fund – has to always be liquid. It is well known to keep 3 – 6 months of funds for a rainy day. As for the amount to keep, it really depends on everyone’s personal situation. I would say, it depends on how much you spend and how willing one will be able to adjust to change their lifestyle. Given the current situation, it may be better to keep up to 9 or 12 months of emergency funds. Again, it depends very much on every individual’s finance situation.

Reduction of interest in “High Yield”saving accounts

Recently, we have seen the banks reducing the interest rates of deposit accounts or “high yield” saving accounts. It is only a matter of time when everyone else will reduce that interest amount so it is important to always keep funds liquid. You will never know what happens so it is important to stick to the rules – Keep your liquid funds liquid. A couple of months back, I found an interesting channel to keep some funds for a pretty high yield of 2.5% pa.

Of course, there are plenty of choices out there to choose from but today we shall talk a little more about an “alternative” choice as compared to a bank. Let’s throw Fixed Deposits out of the equation as well as they are close nothing at this point in time.

Singlife

This is Singlife account. The interest of 2.5% p.a. is capped for the first $10,000 that you fund the account and the next $90,000 will be on 1.0% p.a. Any amount more than $100,000 will earn no interests thus this account will be suitable for anyone who wishes to keep a small sum of funds with Singlife and the hassle of having another account.

As indicated on their website, the Singlife Account is an insurance savings plan and it is neither a bank savings account nor fixed deposit. Each person is only entitled to one Singlife Account policy.) Singlife is also known as an Insurance Technology company that is licensed by MAS.

This is a really good channel to keep funds in however just take note that the 2.5% p.a. is not guaranteed and can be changed anytime. I think that this is fair given how flexible the funds can be taken out at will. In a most recent post, the news state that Singlife has raised 100 million funds in new AUM.

Pros

Below are some of the pointers that I felt is compelling enough to sign up for an account as the pros outweighs the cons at this moment and I am going to discuss more about why we should just get an account online:

First, Singlife is an insurance savings plan coupled with insurance and interest features. Fund placed with Singlife will be capital guaranteed so there will not be any hidden fees.

Second, you can earn up up to 2.5% p.a. for the first $10,000 with minimum funding of $500 to start earning this interest amount.

Third, there is insurance benefits – 105% of the account value and retrenchment benefits.

Fourth, the Singlife debit card is complementary and works like a normal debit card.

Fifth, No Lock-In. No contracts. Funds can be withdrawn anytime with no cost and minimum term.

Sixth, application is easy. Works only on an app and you can use SingPass to register easily.

Seven, funds are covered by SDIC so your funds are safe and protected for up to S$75k if there are any bank run on deposits.

In Summary, this can be a good tool for transition of better interest accounts or a medium terms solutions to parking your own funds.

Cons

There are not many bad points out there but to name a few and mainly only due to requirements and how cumbersome it can turn out to be.

First, they are relatively the new boys in town. In terms of branding and knowing who Singlife is needs to be worked on.

Second, since they are an alternative choice, traditional and conservative folks will just monitor or give it a pass

Third, the threshold of up to S$10k for 2.5%p.a. may not be appealing for some folks out there. 

Fourth, having yet another digital wallet or account is going to be slightly more cumbersome. Hence this might deter more sign ups.

The other choice is to go to Tiq or Dash Easy Earn. The interest option is slightly lower but you can’t avoid opening yet another account. 

Conclusion

The whole idea here is to share what are the different options and alternative available to park your funds. If this works for one person, it might not for the other. There isn’t a one size fits all solution but there are plenty of solutions out there. We just have to dig deeper and find out more about them. Then, we also question about the time spent to research and the effort to track different apps and accounts. It really depends on every individual. To some it might be creating more issues but to others, these solutions may be gems. 

I find that these solutions are a good option for the younger group of graduates and those who have just started to find employment. You have to start somewhere so this is one avenue to do so.

To find out more about Singlife, click here: Singlife Website

Disclaimer

This is not a sponsored post and purely my own opinion that I am writing about in my thoughts. If you like what you are seeing, do remember to check they out and do your diligence. Don’t be too fixated with what is the best.

If you like what I am sharing or if it resonates with you, do use my referral codes for other services and products here at https://atomic-temporary-178675883.wpcomstaging.com/contact/ for the services.

Images seen in this article were take off Singlife website for illustration purposes only.

Bond/Debt

On By RistrettzIn Interest Rates, Personal Finance SeriesLeave a comment

For an extended period now, the Marine, Oil & Gas industry is going through trying times for some time now. Going forward, it is going to be difficult to say what is next for them and many other industries

We know that bad times don’t last so are the bankers/relationship managers just out there to sell investment products for their own benefit? During good market cycles, when the company books are looking great, bonds are being issues to help provide the working capital for these companies. The moment the cash-flow stops, the banks stop lending or restructuring. Quite a tough and sad moment though.

Bond/Debt

I discussed about bonds/debts a few posts back and talked about public/private financing in the capital markets. What most companies did was to find some banks to finance their working capital with contracts and assumption of a stable cash flow and they would pay off interest to bondholders over a period of time. What the lead banks provided are in turn offered out to retail/institutional/HNWI to take on a portion of the bond. Most of the time, financing is offered in terms of Loanable Value.

An Example

Let’s use this example: I buy Bond S.Limited on point of purchase for the initial offering at Par Price (100.00). The bank who syndicate this capital raising and offer a portion to other parties so as to diversify the risk. When “Sophisticated” investors take on these investments I offer a 60% Loanable value.

It means that for every $1 worth of S.Limited bonds. The bank will be willing to finance you $0.60. All you need is $0.40 worth of cash. On each reinvestment amount, you get another 60% in loanable term.

a. When the real problem surface

When S.Limited announces that they may have issues repaying bondholders, then the same banks who finances the bond syndication would deemed these investments as not so valuable now and decides to tell you that you can’t lend anymore from the $0.60 previously as what they have valued the investment at so you have to make back the full amount in a few days’ time.

b. The real liquidity and Loanable value changes dynamically

I would think that this is as good as lenders telling the company that they will stop lending. To raise $0.60 from elsewhere isn’t really a problem for most people but how about $600,000 or $6,000,000 which I really doubt many of us have that kind of cash waiting around somewhere.

Sample Illustration

Mathematically,  it can be easily understood. (Not really isn’t it looking at this complicated piece of calculation table) This is basically a long form of maximising the full loanable amount and then re-investing them back into the same investments and over again:

Name of Security Cash for Investment Loanable Value Loan Amount Cash Used Balanced Cash Value of Portfolio (Nett of Loans)
S.Limited 6.00% 2025 1,000,000.00S$ 60% 600,000.00S$ 400,000.00S$ 600,000.00S$ 1,000,000.00S$
  600,000.00S$ 60% 360,000.00S$ 240,000.00S$ 360,000.00S$ 1,000,000.00S$
  360,000.00S$ 60% 216,000.00S$ 144,000.00S$ 216,000.00S$ 1,000,000.00S$
  216,000.00S$ 60% 129,600.00S$ 86,400.00S$ 129,600.00S$ 1,000,000.00S$
  129,600.00S$ 60% 77,760.00S$ 51,840.00S$ 77,760.00S$ 1,000,000.00S$
  77,760.00S$ 60% 46,656.00S$ 31,104.00S$ 46,656.00S$ 1,000,000.00S$
  46,656.00S$ 60% 27,993.60S$ 18,662.40S$ 27,993.60S$ 1,000,000.00S$
  27,993.60S$ 60% 16,796.16S$ 11,197.44S$ 16,796.16S$ 1,000,000.00S$
  16,796.16S$ 60% 10,077.70S$ 6,718.46S$ 10,077.70S$ 1,000,000.00S$
  10,077.70S$ 60% 6,046.62S$ 4,031.08S$ 6,046.62S$ 1,000,000.00S$
  6,046.62S$ 60% 3,627.97S$ 2,418.65S$ 3,627.97S$ 1,000,000.00S$
  3,627.97S$ 60% 2,176.78S$ 1,451.19S$ 2,176.78S$ 1,000,000.00S$
  2,176.78S$ 60% 1,306.07S$ 870.71S$ 1,306.07S$ 1,000,000.00S$
  1,306.07S$ 60% 783.64S$ 522.43S$ 783.64S$ 1,000,000.00S$
  783.64S$ 60% 470.18S$ 313.46S$ 470.18S$ 1,000,000.00S$
  470.18S$ 60% 282.11S$ 188.07S$ 282.11S$ 1,000,000.00S$
  282.11S$ 60% 169.27S$ 112.84S$ 169.27S$ 1,000,000.00S$
  169.27S$ 60% 101.56S$ 67.71S$ 101.56S$ 1,000,000.00S$
  101.56S$ 60% 60.94S$ 40.62S$ 60.94S$ 1,000,000.00S$
  60.94S$ 60% 36.56S$ 24.37S$ 36.56S$ 1,000,000.00S$
  36.56S$ 60% 21.94S$ 14.62S$ 21.94S$ 1,000,000.00S$
  21.94S$ 60% 13.16S$ 8.77S$ 13.16S$ 1,000,000.00S$
  13.16S$ 60% 7.90S$ 5.26S$ 7.90S$ 1,000,000.00S$
  7.90S$ 60% 4.74S$ 3.16S$ 4.74S$ 1,000,000.00S$
  4.74S$ 60% 2.84S$ 1.90S$ 2.84S$ 1,000,000.00S$
  2.84S$ 60% 1.71S$ 1.14S$ 1.71S$ 1,000,000.00S$
  1.71S$ 60% 1.02S$ 0.68S$ 1.02S$ 1,000,000.00S$
  1.02S$ 60% 0.61S$ 0.41S$ 0.61S$ 1,000,000.00S$
  0.61S$ 60% 0.37S$ 0.25S$ 0.37S$ 1,000,000.00S$
  0.37S$ 60% 0.22S$ 0.15S$ 0.22S$ 1,000,000.00S$
  0.22S$ 60% 0.13S$ 0.09S$ 0.13S$ 1,000,000.00S$
  0.13S$ 60% 0.08S$ 0.05S$ 0.08S$ 1,000,000.00S$
  0.08S$ 60% 0.05S$ 0.03S$ 0.05S$ 1,000,000.00S$
  0.05S$ 60% 0.03S$ 0.02S$ 0.03S$ 1,000,000.00S$
  0.03S$ 60% 0.02S$ 0.01S$ 0.02S$ 1,000,000.00S$
  0.02S$ 60% 0.01xS$ 0.01S$ 0.01xS$ 1,000,000.00S$
  2,499,999.97S$          

Total Amount / (1-Loanable value) = $1,000,000 / (1-60%) = $2,500,000

With $1, the bank can loan you up to $2.50 presumably that you reinvest them into the same bond.  Total investments become $3.50 (e.g. Nett of loans, $3.5 – $2.5 = $1). The Nett portfolio value still remains the same but that comes with plenty of risks:

1. You leave no buffer for any mark to market movement
2. You become concentrated into one single asset class and one company
3. Loans means you have to service the interests on a regular basis so with increase in interest rates, that brings your return lesser though you have taken more risks
4. In times of liquidity and crisis, most likely you will not be able to sell your holdings as fast
5. When you hit a margin call, you most likely have to top-up your cash balances as soon as possible or that would become a sell-out eventually at the current price.

On the flip side,

1. You maximize fully what leverage can bring you.
2. Yield is increased because of the leverage factor.
3. Returns will eventually increase with a higher risk taken.

What is your investment profile?

Again, it brings us back to basics again. That high risk taker with a long horizon? The conservative investor that is skeptical? I am not surprised that there are high risk takers who doesn’t mind this scheme. Then again, if you know the risks you are taking then take it like a man.

I’ve met and known people who are so egoist about their aggressive investments ideas. When shit his the fence, they do point the finger on others. Unfortunately, they know the risks that comes with. When it comes to money, humans behave differently.

Increasing Debt

There are businesses who keeps increasing their loan size at every maturity. When you look at the cash flow, they are paying out more than 100% from what they make. It is similar to spending more money than what you make. In this aspect, it seems like the company wanted to:

1. Keep investors happy that they are receiving the dividends
2. Ensure that their stock price on the exchange stays stable
3. Waiting out for the bad cycle to ride through and business to pick up again.

Extending Debt result

1. The money paid out have to be taken from somewhere and most of the time it is from a bond and restructured many times most likely
2. Anyone who digs deeper into the company details will know the state of their company
3. The cycle may not ever recover for the company to be relevant anymore

It is important to be thrifty and know how much you can afford to spend. Does looking rich or being rich matter more to you?