Dear readers, with interest rates for savers at one of the record highs in recent years right now, it seems to me those financial institutions, especially the banks are rolling out many promotions related to savings and fixed deposits for your monies.
And I believe some insurance companies are jumping on the bandwagon, bundling some saving plans for individuals.
Recently, I learnt of one savings plan by an insurance company where an individual puts in a fixed amount annually say $10,000 for 5 years and stops paying annual premiums after that but the individual will continue to receive some $1,000 per year for 1st year to 20th year! Not only, that at the end of the 20th year, the individual will get back his capital with around 2% to 3% increment.
At first glance, the above seems a good deal, but only if we do the maths, we can then know that the interest rates received for a total capital of $50,000 is just a little over 2% per annum and this can hardly beats the current rates of inflation! And not to mention, having your monies locked away, for 20 years!
On the converse, if the individual invests $50,000 in the stock markets at the most opportune times, example one of the bottoms of the stock markets correction, possible returns to be achieved will be far superior.
Hence, my advice to savers and investors is not to be too enamoured of those savings plans packaged to look a little bit more attractive, always do your maths first.
And be careful not to lock away the monies that you may need or which you could use to take advantage of the stock markets during market corrections for these very long-term savings plan which do not give you good returns on an annualised average basis.
I would encourage individual savers, if they want to grow their monies with the higher interest rates these days to go for those shorter-terms one or which do not penalise you for early withdrawals (e.g. Singapore Savings Bonds).