Various types of deposits in Singapore

Standard

There are various types of fixed deposit products available in Singapore. Let’s examine a few main types of deposit products and their key features:

Conventional Fixed Deposits

These deposits, also known as Time Deposits, provide higher rates of interest than are available on Savings Accounts. These rates are guaranteed. Deposit tenors can range from between 1 week to 36 months. The longer you hold a deposit, higher the interest rate earnings.

Premature withdrawals

You may choose to withdraw your deposit before the maturity date. The general industry practice is that if your deposit has completed “quarters” (3 months or in multiples of 3 months), you will be paid a lesser interest than originally contracted. And, if you withdraw before 3 months you may receive no interest at all.

Collateral

You can use your fixed deposit corpus as collateral for credit facilities like Overdrafts. DBS Bank, for instance, offers such credit facilities against your Singapore dollar deposits.

Foreign Currency Deposits

Foreign currency fixed deposits are deposits that are denominated in a currency other than the Singapore Dollar. Many banks in Singapore offer foreign currency deposits in a variety of currencies. These are usually available in tenors ranging from one week to 12 months. Foreign currency deposits provide the potential of earning higher returns than on conventional deposits. They are, however, subject to foreign exchange risk.

Premature withdrawals

Premature withdrawal may result in payment of no interest at all. On top of it, you may be charged a penalty fee. Thus, you could receive lesser than the amount you originally invested. And, if foreign currency movements are not in your favour, this amount may go down further.

Islamic Fixed Deposits

Islamic fixed deposits are also available in Singapore. These deposits conform to Shariah principles.One example is the Singapore Dollar Term Deposit-i from Maybank. This deposit product is based on the Shariah priniciple of Murabaha, involving sale of commodities at a marked-up price between Maybank and you. Profits are determined upfront and will be paid one calendar day after cash placement or cheque clearance. Customers who are 55 years of age and above can enjoy 0.25% above prevailing profit rates.deposit account

Some banks have deposit products that offer a variety of automatic renewal options upon the deposit reaching maturity date. These are:

  • Renewing the principal together with the interest
  • Withdrawing the interest and renewing the principal
  • Withdrawing both the principal and interest (they will generally be credited to your current or savings account)

Deposit Insurance Scheme

Singapore dollar deposits of non-bank depositors and monies and deposits denominated in Singapore dollars under the Supplementary Retirement Scheme are insured by the Singapore Deposit Insurance Corporation, for up to S$50,000 in aggregate per depositor per Scheme member by law.

Monies and deposits denominated in Singapore dollars under the CPF Investment Scheme and CPF Minimum Sum Scheme are aggregated and separately insured up to S$50,000 for each depositor per Scheme member.

Foreign currency deposits, dual currency investments, structured deposits and other investment products are not insured.

Advertisements

Common mistakes about investment and how to avoid them

Standard

Whether it is retirement, a child’s education, a home purchase, going for that dream vacation or whatever it is that you want, proper investing can help you achieve it. However, many people tend to make the following mistakes while going about their investment decisions. Check these common mistakes out and ensure that your investment decisions are not set back due to them:

Not planning your investments – Investing is not a random activity that you indulge in whenever you have some surplus funds. Make sure that you have clear goals and objectives, understand the risks associated with each class of investment that you use and use a well-diversified strategy.

investment

Saving enough money for your child’s education or accumulating a sufficient corpus for your retirement are NOT clear goals. Saving $100,000 for a child’s college education or accumulating $2 million for retirement by age 60 are clear and objective goals. Once you’ve determined your goals research various categories of investments, learn the risks associated with each of these categories and choose those investments that fit your current financial situation, your risk appetite and goals.

Putting all your eggs in one basket – Older generations of Singaporeans believed almost exclusively in fixed deposits. Fixed deposits may be fine if you have a low risk appetite and want only guaranteed returns; however, even here, the September 01, 2015 roll-out of Singapore Savings Bonds (SSBs) are an attractive alternative.

Time horizon – expecting too much, too soon – This is a mistake that we see all too often with those who are keen on market-linked investments like equities, bonds, unit trusts etc. These investors are aware that market-linked investments give the best returns over the long term but are too impatient to wait appropriately.

Understand the time horizons associated with each investment category and stick to it despite market fluctuations.

Not monitoring your investments – You’ve done the research, understood the pros and cons of various investment categories, decided upon a well-diversified portfolio and invested accordingly. Job done, right? No. The job is only half-done. Having done all the ground work and having built a good portfolio it is now incumbent upon you to keep monitoring your investments and trimming some and adding others as the situation demands.

Not consulting an expert – It is not always easy for a lay investor to build up the knowledge required to devise a good investment strategy in keeping with their needs. At such times it is best to take the advise of a qualified expert.

Just ensure that the Adviser you are dealing with meets the criteria laid down by the Monetary Authority of Singapore and the rules under the Financial Advisers Act. The MoneySENSE (a national financial education programme for Singapore) website (www.moneysense.gov.sg) has a great presentation, “Dealing With A Financial Adviser: What To Look Out For?” for you to go through. MoneySENSE, is in fact, a great place for you to gain financial knowledge.

How to save tax on Fixed Deposit interest

Standard

Fixed Deposits are a popular banking product mainly because they pay returns that are much higher than are available with standard savings account products. Moreover, returns on standard fixed deposits are guaranteed.

Here, we will tackle the interesting question of tax on the interest earned through fixed deposit; we will look at the applicability of income tax and how to save interest on income tax, if applicable. We will also look at this question from the point of view of foreigners working or residing in Singapore.

Applicability of Income Tax on Fixed Deposit interest

The interest received from fixed deposits is taxable, unless they are specifically exempted under the Income Tax Act. And, as per the provisions of the Income Tax Act, interest received from deposits with approved banks or licensed finance companies in Singapore is not taxable.

fixed deposit

Approved banks include those banks that have been classifed by the Monetary Authority of Singapore (MAS) as “Commercial Banks” or “Merchant Banks”. Licensed finance companies are categorized as such by the MAS. You can easily check out these entities on the MAS website.

Moreover, you do not need to declare interest that is not taxable.

When interest on Fixed Deposit interest is taxable

Fixed deposit interest income from the following sources is taxable:

  • Deposits with non-approved banks
  • Deposits with finance companies not licensed in Singapore
  • Pawnshops

If tax is applicable, you need to declare the full amount of your taxable interest under “other income” in your tax form.

Deductions that can be availed to save taxes

If you are liable to pay tax on your fixed deposit interest you can use the following broad categories of deductions to save on your taxes:

  • Employment expenses, if you are an employee
  • A range of expenses and allowances if you are self-employed, a sole-proprietor or a partner in a partnership
  • Rental expenses
  • Angel Investors Tax Deduction Scheme (AITD)
  • Donations

FD Interest – Tax applicability for foreigners

Foreigners refer to non-Singaporeans and non-Singapore Permanent Residents (SPR). Foreigners are liable to tax in Singapore on all income accrued in, or derived from Singapore. The extent of tax liability will depend upon tax residency status.

  • If you are a tax resident:
  • Your income after deductions of tax reliefs will be taxed at progressive resident rates.
  • If you’ve been issued with a work pass of at least 1 year validity, you will be treated as a tax resident upfront.
  • You will be taxed on all income earned in Singapore and any foreign-sourced income (with the exception of those received through partnerships in Singapore) that was brought into Singapore prior to 01st Jan 2004.
  • You will also be required to file Form B1 (Income Tax Return for Residents).

If you are a tax non-resident:

  • You will only be taxed on all income earned in Singapore.
  • You will not be entitled to tax reliefs.
  • Your employment income will be taxed at a flat rate of 15% or the progressive resident rates, whichever results in a higher tax amount.
  • Director’s fees and other income such as rent earned in or derived from Singapore will be taxed at the prevailing rate of 20%.
  • You are required to fill in Form M (Income Tax Return for Non-Residents).
  • If you are employed for 60 days or less in a year, your short term employment income is exempt from tax. This rule does not apply if you are a director of a company, a public entertainer or a professional in Singapore.

Different types of investments in Singapore

Standard

Types of investmentsProper financial planning is important if you wish to formulate and achieve your financial goals; goals may include a car, a house, education, retirement planning etc. One way of meeting your financial goals is by choosing suitable avenues for investment. Today, there are many different investment products available for you to choose from. Lets explore a few:

Unit Trust Funds – A Unit Trust Fund pools money from investors and invests it in a portfolio of assets according to the fund’s stated investment objective and investment approach. A unit trust is a fund which adopts a trust structure. The pool is managed by a team of full time professionals and a trustee is appointed to protect the interests of the unit holders.

Real Estate Investment Trusts – REITs are instruments that offer investors the opportunity to invest in a professionally managed portfolio of real estate assets. You can invest in a REIT by purchasing units of the trust, in a manner similar to shares of a common stock.

Structured Deposits – A structured deposit combines a deposit with an investment product. The return on a structured deposit depends on the performance of the underlying financial asset, product or benchmark.

Gold and Silver Savings Accounts – A Gold Savings Account (GSA) or a Silver Savings Account (SSA) enables a customer to buy and sell gold or silver without physical delivery. Holdings of gold and silver are usually recorded in grams (for gold) or ounces (for silver) and purchased quantities are credited to the holdings account and sold quantities are debited from the holdings account.

You can also use the Ordinary Account Balance and the Special Account Balance (from 1 July 2010, only monies in excess of $20,000 in the Ordinary Account and $40,000 in the Special Account can be invested) in your Central Provident Fund account to invest in gold (not in silver) via Gold Savings Accounts subject to the bank’s rules and the rules of the CPF investment scheme.

Insurance cum Investment products – Whole Life Insurance provides life-long protection for your dependants in the form of a death benefit upon the death of the insured.

Endowment Insurance products combine savings with an insurance protection component and are often marketed to help you meet a financial goal like paying for your children’s education, or to build up savings over a fixed policy term.

Insurance-linked Investment Policies have both life insurance and investment components. Your premiums are used to pay for units in investment–linked sub-fund(s) of your choice. Some of the units you buy are then sold to pay for insurance and other charges, while the rest remain invested.

Insurance products may also provide tax relief.

Stock market instruments – You can also choose to invest through instruments like stocks, bonds, futures, options, exchange traded funds etc. Before you start trading in equities and other stock market securities you will require a securities account or a CDP account with the Central Depository Pte Ltd (CDP) for holding your shares and for settlement of trades.

You will also require a Brokerage or a Stock Trading Account to conduct your trading. Your trading account needs to be linked to your CDP account before you start trading. Generally your stock broker will help you open both a Brokerage and a CDP account.