Starting from yesterday, interest rates on the savings accounts at both DBS and POSB will be reduced.

The interest rate for the first $50k held at PSOB will be cut from 0.25% to 0.125% while DBS Savings Plus account holders will get 0.1% for the first $50k.

Rates at other banks are similarly low. For example:

UOB - 0.125% on first $15k

OCBC - 0.125% on first $10k

SCB - 0.125% from amount between $1000 and $2500

With the cut by DBS and POSB, the 3-month treasury bills could be an alternative to those who has excess cash but do not wish to park it into a long tenure fixed deposit. Currently, the 3-month T-Bill is yielding about 0.25% p.a. You can apply for it on a weekly basis via ATMs of the local banks without the hassle of going down to the bank branches.

In the past, investing in Singapore Government Securities (SGS), otherwise known as Singapore Government Bonds or T-bills, require either a trip to a local bank for buying new issues, or transacting through a secondary dealer (eg a stock broker) for buying or selling of Government Bonds that were already in the market.

SGS are the safest products around as your capital is only at risk if the Singapore Government defaults. These debt instruments require a minimum investment of just $1000 and can be bought using both cash and CPF.

However, take note that if you sell them before maturity, you might get back more or less than your initial capital. This is because the price of bonds has an inverse relationship to the movement of interest rates. When interest rates goes down, the price of bonds goes up, and vice versa. The longer the duration of the bond, the greater this effect will be.

Starting from tomorrow, application for SGS can be done in a more convenient manner. All you need is a valid CDP account and you will be able to apply for new issues at the ATMs of the three local banks.

The yield of recent SGS issues are as follows:

3-month T-bill: 0.25% p.a.

1-year T-bill: 0.35% p.a.

2-year bond: 0.65% p.a.

5-year bond: 1.44% p.a.

7-year bond: 1.75% p.a.

10-year bond: 2.58% p.a.

Some of the yields of the SGS are at pretty low levels now. (You can view current and historical prices at the MAS data room)

For example, the 3-month T-bill was giving 2-3% p.a. as recently as 2006-2007. I remember it being a favourite instrument for some people to park their temporary cash. The only thing was that it was a hassle making a trip to the bank every few months. With the ATM system in place, things would be much more convenient.

Based on the latest updates provided by MAS and reported by the Straits Times today, 67 percent of the 5350 complaint cases (mis-selling of Minibond, DBS High Notes, Pinnacle, Jubilee) dealt with by the financial institutions have been offered compensation.

As at last month, $105 million worth of settlement was offered to 3600 of these investors. A quarter of these investors were offered full compensation.

For the record, over $660 million worth of Lehman-linked investments were sold to more than 10,000 investors.

Over in Hong Kong, it was reported that Bank of China Hong Kong (BOCHK) will buy back Lehman Minibond from all their customers at 60 percent of their cost.  An extra 5 percent will be payable after Lehman’s liquidation while old-hand customers will receive an additional 10 percent.

Customers who purchased mini-bonds three to four years ago are eligible for a total of 80 percent rebate.

This means that all of Bank of China Hong Kong customers will get back amounts ranging from 60-80% of their original investment.

Peter Chan, chairman of the Lehman Brothers Victims Alliance, told the Global Times Monday that BOCHK’s proposal was unfair to most investors and that banks should pay back all of the capital invested.

I saw an advertisement for a POSB structured product, the POSB Invest SingGrowth account, in the newspapers the other day. Thought it would be good to highlight and have a look at this product.

The POSB Invest SingGrowth account is a 5-year equity-linked structured product that promises a fixed yearly payout with the potential of a bonus payout if a redemeption event takes place.

A redemption event takes place when the share prices of Singapore Telecommunications Limited, United Overseas Bank Limited, Singapore Press Holdings Limited and SembCorp Industries Limited have all risen 15% or more above their original prices on specific fixing dates.

When that happens, the original investment will also be returned and the product will terminate.

Year	Fixed Payout	Bonus Payout
Year 1	2.78%	-
Year 2	1.08%	0.50%
Year 3	1.18%	1.00%
Year 4	1.28%	1.50%
Year 5	1.38%	2.00%

The minimum amount for this investment is $5000 and here are some examples of how the payout will look like (using $10,000 as an investment). Note that the analysis and examples might not be exhuastive. I am relying only on the information found on the POSB website.

Case 1: No redemption event

You will collect:

End of year 1: $278

End of year 2: $108

End of year 3: $118

End of year 4: $128

End of year 5: $10138

Case 2: Redemption event occurs at end of year 2

You will collect:

End of year 1: $278

End of year 2: $10158

Case 3: Redemption event occurs at end of year 3

You will collect:

End of year 1: $278

End of year 2: $108

End of year 3: $10218

Case 4: Redemption event occurs at end of year 4

You will collect:

End of year 1: $278

End of year 2: $108

End of year 3: $118

End of year 4: $10278

Case 5: Redemption event occurs at end of year 5

You will collect:

End of year 1: $278

End of year 2: $108

End of year 3: $118

End of year 4: $128

End of year 5: $10338

Case 6: DBS/POSB goes bust

You will get back nothing as this product does not fall under the Singapore Deposit Insurance Act.

While the 2.78% payout for year 1 might look attractive, the actual yield for the 5 different cases are computed as follows:

Case 1: 1.55% p.a.

Case 2: 2.19% p.a.

Case 3: 2.02% p.a.

Case 4: 1.96% p.a.

Case 5: 1.94% p.a.

Conclusion

For a 5-year product, there are currently other better options around.

There will be another payment of the GST credits which given to us on 1st July 2009.

Depending on your annual income and house you stay in, the amount will range from $100 to $250.

Senior citizens aged 55 and above will get $50 to $250 more. 2/3 of this extra money will be in cash with the balance going to Medisave.

To check your eligibility or to sign up (you need not do this if you have done it before), you can visit the GST Credits website.