Promotional interest rates offered by banks for fixed deposits are inching closer to the 2 per cent mark, a tantalising prospect for customers keen to kick off Chinese New Year by locking in higher rates.
As interest rates continue to rise, given policy changes in the US, funds become more expensive for banks, so expanding deposit bases becomes more attractive. Foreign lenders continue to lead the pack on this front by dangling tempting rates, as their deposit bases are not as strong as those of local banks.
CIMB Bank has one of the most attractive offers, which runs until Feb 15. For a 12-month fixed deposit of at least $20,000, it is giving an interest rate of 1.8 per cent.
OCBC is close behind, with 1.7 per cent for at least $20,000 for 12 months.
Maybank is offering perhaps the best rate at 1.9 per cent for a minimum deposit of $25,000 for 12 months, while Standard Chartered Bank is offering 1.8 per cent with the same conditions.
HSBC is offering promotional rates with a shorter tenure, such as 1.65 per cent for seven months and for funds of at least $30,000, while United Overseas Bank (UOB) offers 1.7 per cent for 13 months for at least $20,000.
The stronger rates could also pose a challenge to the take-up of the Singapore Savings Bonds (SSB).
Last month's response was the weakest after the bonds were launched last September. Experts have said that investors are waiting to see if the SSB average annual returns will rise since the Federal Reserve increased US benchmark interest rates in December.
OCBC senior investment strategist Vasu Menon said fixed deposits are usually for much shorter tenures of up to two years, compared with the SSB which span 10 years, although they can be cashed out any time. He said: "Although fixed deposits may be less flexible than the SSB, fixed deposit rates for tenures of up to two years have generally been much higher than the coupons for the SSB, which offered an average return of 1.06 per cent per annum for a two-year tenure during last month's offering."
He added it is possible that attractive fixed deposit promotions might have lured some investors away from the SSB.
Mr Choong Wai Hong, head of community financial services at Maybank Singapore, noted that there is also healthy demand for fixed deposits in the first quarter.
"It is when customers receive their bonuses and there are festive promotions to reward customers when they deposit larger time deposit amounts," he said.
Ms Chung Shaw Bee, UOB's head of wealth management for Singapore and the region, said: "In the current low interest rate environment, fixed deposits are and will remain popular with our customers as a relevant solution in the short term. This, however, is not conclusive that fixed deposits are the reason why interest in the SSB has declined." She added that investors hoping to see better average returns since the first US rate hike could have a misplaced belief.
"Returns from the SSB are not directly linked to the US rate but, rather, are determined by the average Singapore Government Securities' yields in the preceding month before each SSB launch."
The lukewarm interest in the SSB is puzzling, said Mr Marc Lansonneur, DBS Bank's head of investment products in Singapore, "since current financial markets are very volatile and riskier products are underperforming".
"The SSB should be a choice investment, thanks to its safety and flexibility. Insufficient awareness of the multiple advantages of this instrument may be a key reason."