I was utterly shocked beyond words when my wife told me that she had found an almost risk-free way to earn 7.8% interest income using a saving accounts that would beat my equity investment portfolio. Apparently, United Overseas Bank (UOB) is launching its UOB One Account which offers a highest interest rate ever on one's savings. Too good to be true right and what is the catch here?
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| 2 Steps to earn "7.8%" interest rate per annum |
Effective interest rates is just 5% for up to S$100K and definitely not 7.8%
(1) Well, the actual effective interest rate is just 5% for up to S$100K. Yes, the 7.8% is just a gimmick as it applies only to amount higher than S$75K but less than S$100K banding. If you have only S$30K or less in your balances, then you will at most earn a 3.85% per annum rate- please see below illustrative table.
(2) Another important point to note is that UOB website did not indicate that this interest rate will be guaranteed for 1 years or 2 years. There is a high probability that UOB will not be able to maintain such high interest rates perpetually. It will probably be wiser to place money into either fixed deposits or Singapore Savings Bond to have any higher interest rate on offer to be locked in for at least 1 year.
Parting thoughts
The extremely high 7.8% interest rate in the "invitation to treat" is just a marketing gimmick to gain attention and interest to try to get retail customers to place their deposit with UOB. While the actual effective interest rate of up to 5% per annum is still very attractive (and some more with the deposits guaranteed by the Singapore Deposit Insurance Corporation), this rate on offer may only be for a short term duration. Personally, I will rather place excess cash into either Treasury Bills or the Singapore Saving Bonds which offers more certainty to the duration of the higher rates.
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