Fixed Deposit Home Rate - The Alternative Interest Rate To SIBOR

Interest rates are going up. This has been the concern for the past few months for many people. A rise in interest rates hurts borrowers and benefits savers. If you are a borrower, a rise in interest rates will really affect you. If you have existing loans such as car loans, housing loans and student loans, a rise in interest rates will mean you'll have to pay more every month to repay these loans. 

If you have existing loans especially housing loans, here is some good news for you. There are ways to mitigate this rise in interest rate and reduce the impact it has on you to the lowest. In this post, I'll show you what the industry calls Fixed Deposit Home Rate. This is an alternative rate to SIBOR which I believe is much better for home loans. If you're on a SIBOR or other variable home loan packages, read on to find out more about this new rate which will be beneficial for you to refinance to.

How Do We Know If Interest Rates Are Rising In Singapore?

The most widely used rate for interest rates here in Singapore is the SIBOR. It is called the Singapore Interbank Offer Rate, a rate which Singapore banks lend to each other. There is the 1 month SIBOR, 3 month SIBOR and the 12 month SIBOR. These rates are commonly used for housing loans when you loan from the bank on a variable rate package. 

Currently, the 3 month SIBOR is about 1.1%. The highest 3 month SIBOR was 7.75% in January 1998 and the lowest was 0.25% in September 2011. From the chart below, SIBOR can really swing quite widely. It is really possible for SIBOR to increase back to the 2-3% mark.  

When SIBOR increases by too much, those with housing loans will have to pay more for their instalments. For the past few months, I've been working closely with banks for my mortgage consultancy work. I've seen rates increase and also helped people refinance their home loans to better rates. There is an alternative rate to SIBOR which I think is a better choice for those with existing home loans. If you have existing home loans, listen to this carefully as it will definitely help you save more money in the long run.

Fixed Deposit Home Rate - The Alternative Interest Rate To SIBOR

In the past, there are only limited choices for home loans. People either choose the fixed rate packages or the floating rate packages pegged to SIBOR or the bank's board rate. For SIBOR, the rate is too volatile while the bank's board rate is not as transparent meaning the rate can change as and when the bank decides to change.

To safeguard ourselves against interest rates increase, we can choose the fixed rate packages but fixed rate packages are only available for 2 years to a maximum of 3 years currently. Thereafter, the rate will revert back to the variable package pegged to either SIBOR or bank's board rate again.

Now comes a new package called the fixed deposit home rate. This rate is pegged to a bank's fixed deposit rate where it is certainly less volatile than the SIBOR. Why the fixed deposit rate does not increase that much is because increasing this rate is a cost to the bank. Especially in Singapore where a lot of cash is parked in the fixed deposit accounts, banks have to think twice before increasing this rate.

From the past historical trend, the highest fixed deposit rate was around 0.875%-0.925% as compared to the highest rate of SIBOR at 7.75%. The fixed deposit rate can be either pegged to the 12 month, 18 month, 24 month or 36 month rate. Currently, only 2 banks in Singapore offer this home loan package which is pegged to the fixed deposit rate.

Refinancing to this rate would mean more stability for our monthly housing loan instalment and cost savings in the long run. To find out more about this rate or refinance your housing loans to this rate, you can email me at sgyounginvestment@gmail.com. I do not charge any fees for providing advice or refinancing your loans. This is a strictly complimentary service I offer to readers here.

Term Insurance Or Whole Life Insurance? Which Is A Better Choice?

My Encounters with Insurance

For the longest period of time, whole life insurance and insurance savings plan (endowment plans) were the only thing I know which existed in the market. 9 years ago when I was at the age of 18, I had my first encounter with insurance. I was still a student back then and was approached by a financial consultant on the streets while I was going out. I'm sure many of you have been approached before too. I agreed to hear more about insurance and sat at a MacDonalds with this consultant for the next 1 hour plus listening to what insurance is all about. I was introduced a savings plan and was told the interest will certainly be more than a bank's interest. Besides that, this plan also has death, total permanent disability (TPD) and critical illness coverage. It kinda makes sense that I can put in money, get higher returns for my money and still get the coverage. It sounds so attractive that I signed up on the spot. To this day, I still have the policy which I've been paying for the past 9 years.

The policy which I had, although has a coverage for death, total permanent disability and critical illness, was only $10,000. It is certainly not enough should I have dependants or if I need to provide for my parents in the future. My next few encounters with financial consultants was on the topic of whole life insurance. This time round, I took my time to decide whether to take up an insurance policy as the premiums weren't cheap. Many times, I was recommended policies with $100,000-$200,000 coverage at premiums of $200 per month or $2400 a year. I only just started working back then and didn't have a high starting salary. Paying $2400 a year is still quite a big sum of money to me.

Fast forward to today, I didn't purchase the whole life insurance for only $100,000-$200,000 coverage for $2400 per year. Later on, I found out another insurance called term insurance which I could get One Million coverage for only about $1500 a year. The same $200,000 coverage would only cost $300 a year back then instead of the $2400 which I was recommended. Why is there such a big difference in the premiums?

*Disclaimer: Before I continue, this post is not a recommendation for any insurance policies as I'm not here to do that. I will only list down the facts of what term insurance or life insurance is and let you see for yourself which is a better choice. Let's start!

Term Insurance Or Whole Life Insurance?

During NTUC Income's 40th anniversary dinner, Senior Minister Goh Chok Tong supported the use of term insurances and even asked insurers to put more emphasis on it. Let's see the rationale behind term insurance and whole life insurance and find out which is a better choice?

Whole Life insurance premiums are definitely much more expensive than that of a term insurance for a similar coverage. A person at the age of 20 can get a $200,000 death and TPD coverage for just $300 a year with a term insurance as compared to $2000+ a year for a whole life insurance. For whole life insurance, you get something back when you terminate your policy but for a term insurance, you would get nothing back at all. This is the argument put forth which discourages term insurance.

However, let's understand why we would get something back for a whole life insurance and not for a term insurance? For a whole life insurance, every dollar you pay as premium for the whole life plan, a portion will go into paying the mortality charge that provides you the cover you need. The rest of it is invested into the insurance company’s life fund. The mortality charge portion is never returned back to you. The only reason why you get money back from a whole life plan is because you gave the insurance companies extra money to invest. When you buy a term plan, you are effectively paying only for the mortality charge; you are just buying pure protection.

Have you heard of the phrase buy term and invest the rest? This is saying we should buy term insurance and invest the rest of our money on our own. Instead of putting our money into the insurance company's life fund, we can invest our own money and manage our own fund. This is of course subjected to individual preference. Some may not know how to invest their money and would still be better off putting their money in the insurance life fund.

But, there is a problem with whole life plans. If let's say we want to get 1 Million insurance coverage, it becomes too expensive if we were to get a whole life insurance. A check on DIYInsurance's comparison portal shows that a $100,000 coverage for whole life insurance would cost between $1600-$1900 a year. How much would a One Million coverage cost for life insurance? It could easily be above $10K a year.

DIYInsurance has also launched a term insurance table to compare the premiums across insurance companies in Singapore. The following is a table adapted from DIYInsurance's website for your reference. This Term Insurance table is also updated monthly by them.

We consider the following example of a Male, Non-Smoker:

• Policy coverage till 65 years old (Eg. when children are independent)
• S$1million Death and Total Permanent Disability (TPD) Coverage

Annual premiums of insurers in Singapore (S$):

Age	Aviva	AXA Life	Etiqa	Great Eastern	HSBC Insurance	Manulife	NTUC Income	Prudential	Zurich Life	Apply for Cheapest
30	1087	1088	1990	1560	1339	1202	1810	1658	1304	Apply
40	1835	1871	3440	2690	2640	2016	2681	2567	2001	Apply
50	3379	3379	5330	4260	4494	3701	4702	4268	3549	Apply

For a Female, Non-Smoker,

Annual premiums of insurers in Singapore (S$):

Age	Aviva	AXA Life	Etiqa	Great Eastern	HSBC Insurance	Manulife	NTUC Income	Prudential	Zurich Life	Apply for Cheapest
30	868	791	1390	1070	1008	948	1350	1249	967	Apply
40	1390	1357	2370	1750	1980	1410	2107	1881	1506	Apply
50	2450	2078	3450	2600	3144	2276	3850	3049	2661	Apply

*With information from www.diyinsurance.com.sg and comparefirst. Figures are compiled on 5th November 2015.

** Prices reflected in the table reflect ongoing existing promotions and discounts which are in the knowledge of.

Term insurance or whole life insurance? You can make your decision base on the information provided above. There are many ways to compare insurance premiums now in this IT savvy world we live in. All of us can make better informed choices!

DIYInsurance by Providend Ltd

To compare and purchase insurance, DIYInsurance (Do It Your Way Insurance) is Singapore's First Life Insurance Comparison Web Portal by Providend Ltd. DIYInsurance aggregates products from various insurance companies and provides 30% commission rebates in addition to ongoing promotions.

Backed by key people with almost 2 decades of experience, all staff from DIYInsurance are salaried based and do not participate in sales-based compensation or incentives of any kind. Not being remunerated on a commission-basis means there is no hard-selling and over-selling. This is insurance based on no one's agenda except your own. Click here to request a Term Life Insurance quote through DIYInsurance.

*This post is written in collaboration with DIYInsurance. The opinions and expressions in this article are solely based on my own thoughts and experiences. 

Does Money Make You Mean?

Money is the root of all evil? I came across a video on Facebook which shows an experiment that was conducted using the game of Monopoly to see whether does money really make people become mean? Its interesting to note how money can really change a person. Watch the video below:

Does Money Make You Mean?
What happens when a rigged game of Monopoly makes some players really rich? Watch the full talk here: http://t.ted.com/TKyFGXE(Created in collaboration with AJ+.)
Posted by TED on Wednesday, November 11, 2015

The experiment shows that having more money does make people become less sensitive to the plight of others. As a person gets wealthier, their feelings of compassion and empathy goes down and their feelings of entitlements goes up. The wealthier you are or the higher your status, the more likely you're to pursue personal success to the detriment of others. This is quite true as what we can see even in work places. Bosses compete and take advantage of employees just to climb the corporate ladder or meet their targets.

But, there can be changes to this by reminding people on the benefits of cooperation instead of competition, or the advantages to community. This can make wealthier individuals more empathetic in this world. Its a good reminder to us as we earn more money or climb the corporate ladder in our own lives. Its not about chasing money but creating value in the world. That's what I believe.

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