Sunday, January 23, 2011

POSB Invest Yield Series 11 advertised as 6.88% total payout

Singapore local bank, POSB Bank, is currently running a structured deposit investment product - POSB Invest Yield Series 11. Dr Money wrote a couple of articles on his definition of structured products [12].

POSB Invest Yield Series 11 advertisement
Looking at the advertised banner, I admit being misled into thinking the investment yield payout can be as high as 6.88% p.a (p.a. was formed in my mind almost immediately but of course I was wrong). 6.88% is definitely going to be a stark contrast against the meagre low 0.1% p.a. interest rate offered POSB Savings deposit. For your information, UOB Bank has a "Grow your savings the easy way" banner plus a "Attractive interest rates" on its website for their "proud" 0.1% p.a. savings deposit interest.
UOB proud 0.1% p.a. interest labelled as Attractive - LOL

Back to POSB Invest Yield Series 11 topic, their payout table in the 4 years 11 months tenure is as follows:

POSB Invest Yield Series 11 payout table

A more careful look on the table would have revealed the per annum payout would definitely be less than 1.8% (too lazy to calculate actual p.a.). The as-advertised 6.88% is just a primary school summation of all the 4 years 11 months p.a. percentages. Is this misleading and confusing? Definitely YES but POSB Bank is not violating banking laws since the p.a. is excluded from the advertising banner. Are they flouting ethical practices? I shall leave the answer to you yourself.

With such low interest rates returns, non-guaranteed interest rates return since the issuer can always terminate the tenure should the risk becomes high, and a lock-in period of almost 5 years, why not just invest on government bonds for a higher interest rate?

Some history on structured products

On 12 Feb 2010, the Monetary Authority of Singapore (MAS) lifted ban on sale of structured notes on DBS Bank, and the Singapore branches of Malayan Banking Bhd. and Royal Bank of Scotland. On 24 August 2010, the MAS lifted ban on CIMB Securities (Singapore) Pte Ltd, DMG & Partners Securities Pte Ltd, Kim Eng Securities Pte Ltd, OCBC Securities Pte Ltd, Phillip Securities Pte Ltd and UOB Kay Hian Pte Ltd.

Why the ban in the first place? This is after the disputes between many investors of failed structured products, unable to get back the returns that were being promised. Some of such notorious structured investment products were Lehman Minibonds, DBS High Notes, Morgan Stanley Pinnacle Notes and the Merill Lynch Jubilee Notes.

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