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Sunday, August 30, 2015

How Do You Determine What the “Best” Credit Card Is?

Think back to your first credit card and how you chose it. Did you pick it because you liked the colour, or because a salesman from the bank approached you during your lunch break? Did you sign up on a vague recommendation from a friend about a particular card’s “great perks”? Or did you sign up for the free suitcase?
Here at MoneySmart, we get lots of questions about what the “best” credit card on the market is. Guess what? There isn’t one. Some people think Angelina Jolie is the sexiest woman on earth, while others are more into the likes of Girls’ Generation. Or something. Anyway, the point is, the best card is the one that best suits your lifestyle and spending habits. Here’s how to pick credit cards you’ll actually benefit from.

Identify your major expenditure categories and amount spent

Credit cards reward you for spending on certain things. So obviously it’s pointless getting a credit card that rewards you for spending on a category that you hardly touch.
One example is the OCBC Frank credit card, which rewards you with a 6% rebate for online spending. If you are an online shopping addict, this card would be more appropriate than it would be for someone who buys one new shirt every 10 years. At Giordano.
The next thing you’ll have to consider is the minimum spending you’ll have to satisfy to enjoy the benefits a credit card has to offer.
Let’s use the Maybank Family & Friends MasterCard as an example. To enjoy the 5% cash rebate on groceries, you will need to spend at least $500 in a calendar month. If all your other spending has been allocated to other cards and you don’t think you can spend $500 a month on the card (for instance if you only use this card for groceries but rarely cook at home), you might want instead to get a card like the American Express True Cashback card, which gives you 1.5% cashback with no minimum spend.
Also, plenty of Singaporeans are in love with the idea of travelling for free, and think that an air miles card is the best way to do that. Unfortunately, what a lot of people don’t consider is that they don’t spend nearly enough to ever accrue enough points. Finding a credit card that targets certain expenditure, for instance DBS’s Altitude Visa Signature Card which gives 3 miles for every $1 spent booking flights and hotels, is a much faster way to get to that holiday than just by collecting miles at a base rate. That’s going to take forever.
Check out MoneySmart’s credit card comparison section, where different categories of spending like shoppinggroceriespetrol and dining have been set out for you so you can zoom in on the things you spend the most money on.

Choose which rewards categories suit you best

So your credit card, if you use it wisely, will reward you for your spending. But credit card rewards can take on many forms, and not all of these rewards will be something you like. Before you sign up for a credit card, check what the benefits are and whether they’re useful to you. If you hate flying and your idea of a great holiday is going to Sentosa, a credit card that gives you air miles is about as useful as a punch in the face.
Here are the most common categories of rewards:
  • Rewards points – Usually exchangeable for gifts in the credit card’s rewards catalogue, which can include vouchers and frequent flyer miles.
  • Air miles – Transfer air miles from your credit card to selected frequent flyer programmes and you can then exchange them for flights.
  • Cash rebates – Currently the most popular form of reward on the market now, the cash rebates will be deducted from your bill, effectively giving you a discount.
  • Discounts – Get an on-site discount whenever you spend in a particular category, the most common being petrol.
  • Freebies – Some cards will entitle you to attractive bonuses whenever you sign up as a cardmember or renew your annual membership. You might be given free air miles or gifts such as suitcases or cash.

Compare credit cards on MoneySmart

Credit cards usually offer a mind-boggling array of perks and discounts, so choosing the best ones for you can be quite a task.
When I signed up for my first credit card a few years back, I did research using MoneySmart’s credit card section (true story, I wasn’t writing for them then) to pick out the cards that were most useful to me. That saved me a ton of time, especially as I had no idea which cards were on the market at the time.
These days, to make things even easier you can now sign up directly from the MoneySmart site by simply clicking the “Apply Now” button next to each card, a function that didn’t exist back then. If only everything in life were this easy.
Which are your favourite cards? Share your recommendations in the comments!

Since You Can’t Get Your CPF Money Now, You’re Being Silly by Not Investing It!

cpf investment

One of the biggest complaints that Singaporeans have about their CPF savings? We never actually see the money we’ve saved. Sure, we receive yearly statements but what difference does it make if you cannot cash it out until you’re older? Then there’s the other complaint – that the interest rates of the CPF accounts are too low to combat inflation. Now, what if I told you there’s a way to increase the rate you grow your CPF? I’m talking about the CPF Investment Scheme.
Now, I’m one of those Singaporeans old enough to remember the glory days of video game arcades. Back then, it took skill to see how far you could go in a game while spending the least number of tokens. Well, those days are generally over – with console games and emulators, there’s no longer any challenge about finishing a game on the least amount of tokens.
It doesn’t cost a cent to get another “life” or “continue” when your character dies or is defeated. It’s the same with the CPF Investment Scheme – it doesn’t cost you a cent out of pocket, so you can (and should!) take advantage of it to earn more than the interest rates of the Ordinary Account and Special Accounts.

Who is eligible for the CPF Investment Scheme?

You have to be at least 18 years old, are not an undischarged bankrupt and have enough money in your CPF Accounts. The minimum amounts required are $20,000 in your Ordinary Account or $40,000 in your Special Account. Of course, if you want to take advantage of both kinds of CPF Investment Schemes (CPFIS), then you will need to have the minimum amount in both accounts.

What do you need to know before using your CPFIS?

The most important thing to remember is that any returns you get from your investments through the CPFIS will go back to your CPF accounts. That means you should ideally be investing with the future in mind.
You don’t want to risk squandering all your available CPF funds on a risky product if you’re still not going to be able to enjoy the fruits of your investments for another 20 to 30 years. That being said, CPF has already shortlisted investment products that are less volatile, which is good given Singaporeans’ penchant for.. um.. “risk-taking” (we mean gambling).

What can you invest in?

The CPF Investment Scheme – Ordinary Account allows you invest in a number of products. Here is the complete list:
  • Fixed Deposits
  • Singapore Government Bonds
  • Treasury Bills
  • Statutory Board Bonds
  • Bonds Guaranteed by the Singapore Government
  • Unit Trusts
  • Investment-Linked Insurance Products
  • Annuities
  • Endowment Policies
  • Exchange Traded Funds
Up to 35% of your available balance in your Ordinary Account can be used for:
  • Shares
  • Property Funds
  • Corporate Bonds
Up to 10% of your available balance in your Ordinary Account can be used for:
  • Gold ETFs
  • and other Gold products.
The CPF Investment Scheme – Special Account is much more restricted. You cannot invest in unit trusts or investment-linked insurance products that are considered higher risk. You also cannot invest in shares or gold products. If all this sounds like gibberish to you, start out by heading over to our Investing Learning Centre first.

What are the potential returns of CPFIS investments?

This isn’t an easy question to answer, of course, because of the range of products available. For example, bonds tend to be lower risk, lower returns, while unit trusts are generally higher risk, higher returns.
Ideally, you’d want your investments to at least earn more than the risk-free interest rates of the CPF Ordinary Account and Special Account, which are currently at 2.5% and 4.0% per year.
Also remember that there may be investment costs involved – including bank charges, brokerage charges and other miscellaneous fees. So your returns need to earn enough to pay for these as well.
Ultimately, you want to be looking at returns of at least 5% per year.

How do I apply to invest my CPF savings via CPFIS?

If you want to use your CPF Ordinary Account to invest, and have more than $20,000 in it, then you can open a CPF Investment Account with DBS, OCBC or UOB. Generally, it doesn’t matter which bank you open your Investment Account with, since the fees and charges are the same for all three.
This account is purely to allow whichever bank you choose to administer the funds. You will still need a brokerage account to actually invest the money, and it doesn’t necessarily have to be with the same bank as your CPF Investment Account i.e. you could buy a Unit Trust with PhillipCapital and they will liaise with, say, DBS, to use your CPF money to execute the purchase. We’ll be covering what the best brokerage firms in Singapore are in a separate article so stay tuned with us on Facebook!
If you want to use your CPF Special Account to invest, and have more than $40,000 in it, you can just approach the investment product providers directly. These investment product providers include fund management companies or investment administrators.
Will you consider investing your CPF savings? Why or why not? We want to hear from you.

POSB vs OCBC vs POEMS vs Maybank Kim Eng: Which Regular Savings Plan Should You Choose?

posb ocbc poems maybank kim eng regular savings plans
Did you know that Singaporeans are the second-biggest gamblers in the world? According to a British gambling consultancy we’re supposed to have lost an average of almost $1200 in 2013. The biggest culprits are casino goers and lottery players. I’m sorry, but that’s just insane! Investing that same amount is still a gamble but it’s got WAY better odds that the 1 in 10,000 that a 4D first prize gives you.
But wait! Don’t you need lots of capital and effort to invest? Lottery tickets are so much cheaper and easier to obtain! Maybe in the past that was true, but with a Regular Savings Plan there’s no excuse NOT to start investing the second you turn 18.

What is a Regular Savings Plan?

A Regular Savings Plan invests a fixed amount of funds every month into buying shares or unit trusts. Regular Savings Plan uses an investment method called dollar-cost averaging to protect the investor from most of the volatility of stocks. Dollar-cost averaging uses the same amount of funds to buy more when prices are low and buy less when prices are high. Learn more about dollar-cost averaging here.
A Regular Savings Plan is the best option if you are a beginner investor. It is also suitable if you are someone who does not have the time or the patience to watch the stock market regularly and react accordingly to fluctuations. It is designed for medium to long-term investments, so don’t expect to make a quick buck.

What Regular Savings Plans are available?

Singapore currently offers three options: POSB Invest-Saver, OCBC Blue Chip Investment Plan and POEMS Share Builders Plan. In a bid to remain competitive, all of them now allow you to begin investing with as little as $100 a month!
What sets them apart are the share counters you can invest in, and the cost of investing with them.
posb ocbc poems maybank kim eng regular savings plan
Each Regular Savings Plan available gives you the opportunity to invest in an STI ETF. This is an Exchange Traded Fund that invests in the top 30 listed companies on the Singapore Stock Exchange. That means, using as little as $100, you can invest in 30 Singapore blue-chip companies including DBS, OCBC, SingTel, UOB and Keppel Corp. Find out more about Exchange Traded Funds in our Learning Centre.
In addition to an STI ETF, newcomer Maybank Kim Eng gives you the chance to invest in over 200 share counters, like Google and Apple, in 5 different countries. POEMS also gives you the option of investing in 19 other individual counters like CapitaMall Trust, SIA and ST Engineering. OCBC offers many of the same, but includes 18 other individual counters like ComfortDelGro, Olam International and Wilmar International. POSB only offers two options, the ABF Singapore Bond Index Fund and the Nikko AM STI ETF.
When it comes to dividends earned, POEMS and POSB offers the ability to channel any dividends you earn back into your Regular Savings Plan. Neither OCBC or Maybank Kim Eng has such an option for now.

How much does it cost to invest in a Regular Savings Plan?

POSB charges the most by percentage, with fees of 1% of the amount invested in the Nikko AM Singapore STI ETF and 0.5% for the ABF Singapore Bond Index Fund. That means if you invest $200 a month, the fee should be $2 a month for the STI ETF and $1 for the Bond Index Fund. However, just looking at the absolute percentage can be misleading, as we will show you later.
Depending on how much you invest, Maybank Kim Eng either charges the most (1% for amounts less than $1000) or the least (0.18%-0.2% for amounts $1000 and above, depending on which market the share counter is in). What’s more, until 31st of August this year, all commission fees are waived. This makes for an interesting comparison, as you’ll see below.
OCBC charges only 0.3% of the amount invested, but has a minimum charge of $5 per counter. That means if you invest $200 a month, the fee is $5. If you invest $1666 a month, the fee is $5. Unlike POSB, however, OCBC also charges 0.3% or $5 whichever is higher when you cash in your investments.
POEMS has a slightly complicated system where it depends on the investment amount and how many counters you’re investing in. If your investment amount is less than $1000, then for 1 or 2 counters, sales charge is a flat rate of $6, for 3 or more counters, sales charge is a flat rate of $10. If your investment amount is more than $1000, then the charge is 0.2% or $10 whichever is higher.

So, which Regular Savings Plan should you use?

Ideally, you would want to reduce the cost of investing. If you’re planning to invest an amount between $100 and $500 a month, you should go with POSB or Maybank Kim Eng. The 1% sales fee means you pay between $1 and $5. If you’re looking at between $500 and $3333.33 a month, you might want to go with OCBC (depending on how many counters you invest in).
The 0.3% or $5 fee means you pay between $5 and $10 a month. If you’re able to invest $3333.33 or more a month, go with POEMS or Maybank Kim Eng. The fee you pay is $10 or 0.18% (Singapore shares with Maybank Kim Eng) or 0.2% (POEMS or US, HK, MY or TH markets with Maybank Kim Eng), whichever is higher.
Take the case study of the fictitious Mr Tony Teo. He earns $3000 a month and is able to set aside $500 for investments. He is an investment virgin who doesn’t have the expertise or the patience for a more complex investment. He decides to invest using a Regular Savings Plan.
posb ocbc poems maybank kim eng regular savings plan
Mr Teo feels overwhelmed by the various share counters POEMS makes available to him. If he chooses to invest his $500 in just two counters, he will be paying at least $6 a month, or more than 1% of the transaction fee. The fees get worse if he wants to invest in two counters with OCBC. He will pay $5 per counter, which comes up to $10 a month, or 2% of the transaction fee.
With Maybank Kim Eng, Mr Teo could take advantage of the current promotion where the fees are waived till 31st August 2015. He could also be interested in investing into overseas share counters in the US, Malaysian, Thai and Hong Kong markets. This gives him access to popular tech counters like Apple and Google. However, once the promotion ends, he will be paying $5 in total, or 1% of his investment amounts.
POSB Invest-Saver is the only Plan that offers investors the opportunity to diversify into bonds, which are less volatile than shares. Despite the higher transaction charge by percentage, they are actually the best option for investors who can only set aside a small amount to invest each month. With $500 a month, Mr Teo has the option of choosing to invest in bonds and shares! If he chooses to invest $300 in the STI ETF and $200 in the ABF Index Fund, he only pays a sales fee of $3 for the shares and $1 for the bonds! That’s $4 in transaction fees for POSB Invest-Saver compared to $5 for Maybank Kim Eng Monthly Investment Plan and $6 for POEMS Share Builders Plan.
So if you’re a small-time investor who doesn’t have the patience to monitor the stock market on a daily basis, then POSB Invest-Saver is the Regular Savings Plan for you.
So forget spending even a cent on 4D, Toto or Big Sweep. Just $100 a month in a Regular Savings Plan is the best “gamble” you’ll ever take.
Have you invested in a Regular Savings Plan before? Share your experiences with us!

How to Decide Which Investment Brokerage in Singapore Is Best For You!

Let me guess… you’re fresh out of university, you’re raring to start your career and you think you’re financially savvy and you’ve heard all about the money you can make from buying and selling stocks and shares. Then you realise just how many options you have when it comes to finding a brokerage firm. How do you decide which is best for you? It could make all the difference between whether you’re just breaking even or if you’re actually going to make money from your adventure on the stock market.

What is a brokerage firm?

Very simply, a brokerage firm allows you to buy and sell shares on the stock market. They charge commission fees for each transaction you make. That means that when you buy shares, you get charged. When you sell your shares, you also get charged. That’s why it’s always important to find out how much commission fee a brokerage firm charges you.

Before you get started…

First you need to open a CDP Securities Account. To be eligible to open an Account, you need to be at least 18 years old and an un-discharged bankrupt. You can either do this directly with The Central Depository (it’s a very straightforward process) or create a sub-account with a “Depository Agent” – a stockbroking firm, trust company or bank nominee. Basically, while you can deal with as many different brokerage firms as you want, you only need to open one CDP securities account to deposit all the stocks you’ve bought.

Which brokerage account to choose?

There are several differences between the available brokerage firms in Singapore, and ultimately, it’s up to you to decide which brokerage firm is best for you, depending on your needs. It’s kinda like picking the best credit card in Singapore – everyone’s going to name a different one.
Here are three main factors you need to look out for when choosing the best brokerage firm for you:

1. Commission Fees

Like I said earlier, you get charged commission fees on every transaction you do, buy or sell. If you’re the kind of investor to just “park” your money and not think twice about it, commission fees won’t make much of a difference to you. But if that’s really your investment strategy, then perhaps you should be looking at other long-term products like fixed deposits or Singapore Savings Bonds.
So because you expect to be charged commission fees multiple times, you should not pick one that charges exorbitant rates. On the other hand, depending on how much you’re planning to invest, you could also be caught by the minimum fees. This refers to the minimum commission charged, regardless of how little you’re trading. So if you’re a small time investor, you might want to take note of this as well.
Of course, while fees is an important consideration, this should not be your only deciding factor.

2. Trading Platform

In the past, many trades required investors to call their brokers and deal with them directly. Furthermore, they had to rely on stock prices and other information that may not be updated instantaneously. Those days are long gone. Brokerage firms these days offer online trading platforms or even iOS apps that allow you to check stock prices and make trades on the go.
Of course, if you don’t have any iOS devices, then you might be limited to those firms that have Android app support. Or, you know, don’t become addicted to watching stock prices going up and down and getting all kinds of stressed.

3. Who holds the stocks? CDP or Custodian

This is generally a non-issue because most brokerage firms allow you to hold your stocks with the CDP. What this means is that while you buy and sell stocks through most firms, the stocks themselves are held by you. Currently, only two brokerage firms – Standard Chartered and SAXO Capital Markets – hold your stocks in custodian accounts. What this means is the custodian account (e.g. Standard Chartered) owns the stocks on your behalf.
This also means that they have certain rights over stocks that you have bought. Furthermore, on the very slim chance that the firm goes bankrupt, you will lose all your stocks because it is technically not in your name.

Comparison of brokerage fees

Here’s a list of the more popular brokerage firms in Singapore and their fees. All trading fees are based on online/mobile trades done in the Singapore market.

Brokerage FirmMinimum FeesTrading Fees (based on contract amount)
<$50k$50k to $100k>$100k
CIMB Securities$250.275%0.22%0.18%
DBS Vickers$250.28%0.22%0.18%
RHB Securities (formerly DMG)$250.275%0.22%0.18%
Maybank Kim Eng$250.275%0.22%0.18%
Lim and Tan$250.28%0.22%0.18%
Phillip Securities (POEMS)$250.28%0.22%0.18%
OCBC Securities$250.275%0.22%0.18%
SAXO Capital Markets$150.12%0.12%0.12%
Standard Chartered$00.20%0.20%0.20%
UOB KayHian$250.275%0.22%0.20%
(Do note that Citibank will be changing their minimum fees effective 1 September, 2015.)

As you can tell from the table above, the two brokerage firms that don’t hold your stocks in CDP have the lowest minimum fees and commission rates. However, those lower fees do come at a slightly higher risk, which may or may not affect your decision to go with them.

One final word…

Do take note of optimal trading volumes. You’ll notice that, in general, the lower the transaction amount, the more expensive the commission. So if you’re trading close to $50,000 or $100,000, it doesn’t make sense to pay the higher commission. You may be better off saving up till you can afford to make a higher transaction and incur a lower commission fee rate.
The same thing goes for small-time investors. Generally, you should be trading at least $10,000 per transaction if you want to avoid paying the minimum fee, which will end up being a much higher percentage of your trade than if you were to trade higher.

Do you have any other advice for new investors who want to try out a brokerage firm? We want to hear from you.

Singapore Savings Bonds: What Fixed Deposits Need To Do To Up Their Game!

singapore savings bond

Worried you don’t have enough money to invest? Or don’t know where to start because there are just so many products out there? The Singapore government, in all its wisdom, knows that you should start investing as soon as you possibly can. So, they’re introducing a new investment product called the Singapore Savings Bonds. If you’ve not heard of a bond before, just think of it as you storing money with the government, for them to use in whichever way they choose, and the promise is for them to return it to you with interest. You can check out more information in our article about savings bonds in Singapore
The Singapore Savings Bonds are almost unbeatable as a low-cost investment option. The first Singapore Savings Bonds will be issued on October 1st and you can apply for them from September 1st. A new Singapore Savings Bond will be issued every month over the next 5 years, so there’s no need to rush to buy the first one.
But don’t wait too long either! Here are 5 ways the Singapore Savings Bonds are better than the other low-risk option out there – fixed deposits.

1. The interest rate will increase the longer you hold onto the Singapore Savings Bonds

This aspect of the Singapore Savings Bonds is similar to the way fixed deposits currently work. The longer you invest your money, the higher the interest rate and the more you earn. As an example, currently for a DBS Fixed Deposit, the interest rate for a year is 0.25% compared to 0.55% for two years.
The term for the Singapore Savings Bonds are set at 10 years, so you can expect a relatively high interest rate if you invest for the full term.

2. But… you can get back your money back at any time with no penalty

However, unlike fixed deposits, you can liquidate your money invested in Singapore Savings Bonds at any time without incurring any penalty. This is a huge advantage over a fixed deposit accounts. Currently, DBS will penalise you for early withdrawal from your Fixed Deposit by either giving you less than your principal amount, less or no interest, or both.

3. Singapore Savings Bonds are principal-guaranteed

There are almost no investment products that can guarantee that you will not lose your principal. Other than Singapore Savings Bonds, the only principal-guaranteed investment product is the Fixed Deposit.

4. Singapore Savings Bonds interest rates are linked to long-term Singapore Government Securities rates

There are no Fixed Deposit Accounts that give you more than 1.8% interest. In fact, even a 1.4% interest rate from OCBC is considered a promotional rate and comes with specific terms and conditions. The Singapore Savings Bonds interest rates are reportedly linked to the long-term Singapore Government Securities rates. For a 10 year SGS bond, those have recently been between 2% to 3% per year. Though it’s not exactly clear what the Singapore Savings Bonds rates will be, anything above 1.8% makes them immediately more appealing than a fixed deposit.

5. Minimum of $500 to start

Those who want to invest in Singapore Savings Bonds just need to fork out a minimum of $500. Even DBS, the bank with the lowest requirements, need you to produce a minimum of $1,000 to open a Fixed Deposit Account. This means that the Singapore Savings Bonds would be available to more people than even a DBS Fixed Deposit.

Like that… who wants to put money in fixed deposits?

So, it’s clear that banks definitely need to up their game regarding fixed deposits if they want to remain competitive. We’ve come up with three ways they can stay in the race, and discuss how they affect you, the consumer.

1. Increase Fixed Deposit interest rates across the board

This is a no brainer. For small amounts, fixed deposit rates can go as low as 0.25% for a year. Say you set aside $5,000 for a year. At 0.25%, you’ll only earn $12.50 a year. That’s about $1 a month. All the Singapore Savings Bonds need to do is to offer even a 0.5% return to automatically be twice as attractive an investment option.
Of course, raising the Fixed Deposit interest rates will have repercussions. DBS offers the Fixed Deposit Home Rate home loan package or FHR. By its name, you may have guessed that it’s pegged to their fixed deposit interest rate. When they launched it, it seemed like a great idea because fixed deposit interest rates were expected to stay low. However, with the introduction of the Singapore Savings Bonds, those of you who have FHR home loans might want to pay close attention.

2. Reward Fixed Deposits of larger amounts

The Singapore Savings Bonds are clearly targeted at the average consumer, with the lower minimum amount of $500 as well as a limit to the total investment amount. Banks, in response, should position their fixed deposit products to target high-end investors, since there is technically no limit. Currently, the way banks calculate the interest rates are dependent on the length of the fixed deposit, not the amount. That means, whether you put in $5,000 or $500,000 for 6 months, your interest rate is the same.
Instead, banks should reward those who can afford to set aside more money in their fixed deposit accounts, especially if it’s amounts that are above the limit set for Singapore Savings Bonds.

3. Provide other sign-up bonuses

Banks need to start treating Fixed Deposits the way they treat credit cards. Singaporeans love credit card roadshows because of the attractive sign-up benefits. If banks can offer the same attractions for fixed deposits, it’ll go some way towards capturing the consumer’s attention. Just throw in a luggage bag, a video game console or even an instant coffee machine, and you’d be surprised how quickly customers sign up.
Of course, when that happens, you can be sure that MoneySmart will be the first to roll out a comparison table for the best fixed deposit accounts in Singapore.
What do you think of the new Singapore Savings Bonds? We want to hear from you!

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