[Finance Wiz@Daniel] How to extend the period of high interest on your savings?
FINANCE2023-04-03
5 Mins Read
Recently, I had a chat with some young people who have just started their journey in society, and they shared their life goals with me. Some want to buy a property early, some want to settle down and start a family, while others want to pursue their dream of studying abroad. Although everyone has a different vision for the future, they are actively saving to achieve them.
However, they are facing the same dilemma: 1) their salaries are not high and their savings progress is falling behind; 2) there are too many temptations in life and they would easily fall into the trap of living from paycheque to paycheque; and 3) the trends of fixed deposit interest rates are uncertain, and they don't know where to start when it comes to switching to other low-risk savings tools. In this article, I will go into detail how to earn interests beyond fixed deposits and extend the period of high interest on savings.
4% fixed deposit interest rate is hard to come by
Since last year, the US Federal Reserve has raised interest rates multiple times, and banks have increased fixed deposit interest rates in order to win over customers, with some rates even surpassing 4%. As a result, many rookie and low-risk investors have turned to fixed deposits for high returns.
Yet, many high-interest fixed deposit promotions are ending one after another as we enter 2023, and the market also expects the Federal Reserve to stop jacking up interest rates or raise them by a smaller margin from mid-2023 to the end of the year. This have led some banks to begin cutting fixed deposit interest rates. For this reason, investors who rely on interest earning have to re-examine interest rate trends and hope to catch the last train of high-interest fixed deposits to extend their returns for a few more months.
One thing is clear: the annual interest rate offered by fixed deposits is constantly changing, and high interests are hard to come by. Even if you manage to catch the last train, it's anyone's guess what the fixed deposit interest rate will be when it's time to renew.
Alternatives to the last hurrah of high-interest fixed deposits
According to data from Trading Economics, the average benchmark interest rate in Hong Kong from 1998 to 2023 was 3.11%. This means a 4% interest rate on the fixed deposit is unusual.
Furthermore, those who are accustomed to fixed deposits probably realise that enjoying the best interest rates from banks is not always straightforward. In addition to researching and comparing the rates offered by different banks, customers may also have to fulfill certain requirements which may include depositing new funds, being a selected customer, or maintaining a minimum deposit amount. Some banks may even require customers to deposit at least HKD 1 million to enjoy the highest interest rate provided by their fixed deposit plans. For some, particularly those who are new to the workforce, this threshold seems overly high.
After all, it’s important to do your homework before choosing a savings tool. In addition to comparing interest rates, it's also worth considering whether the tool offers any protection. Have you ever thought about options beyond fixed deposits from banks that not only offer stable interest gains of over 4% for the next 5 years, but also life protection with lower entry requirements than most banks?
Guaranteed returns and life protection in one go
The market is currently teeming with short-term savings plans that offer attractive interest rates, rivaling those of fixed deposits from banks and helping you grow your wealth with ease. The main difference between these plans and common fixed deposits is that the former often include life protection benefits, on top of interest returns. If the insured person passes away during the policy term, the plan will provide a death benefit to their family.
You may wonder if endowment insurance is as safe and reliable as fixed deposits. To ease your mind, all insurance companies in Hong Kong are strictly regulated by the Insurance Authority. As long as you choose a financially strong and reputable company, you can enjoy both interests and life protection with returns that may surpass those of regular fixed deposits.
Pick the right plan to extend the period of high-deposit interest
Take AXA's latest 5-year Goalsaver Endowment Plan as an example, with a minimum annual premium of USD625 (approximately HKD 5,000), you can lock in your interest rate for up to 5 years and receive life protection upon successful application. When the policy term ends, you are guaranteed an annual return of up to 4.5%^, which is simple for you to reach your financial goals. Hence, if you're looking for savings tools beyond fixed deposits and want to have greater flexibility in allocating your wealth in the future while safeguarding your family’s finances, you may find this type of short-term plan to be a good fit.
Finally, whether your savings goal is to build a secure home, get married, or prepare for the unexpected, I would encourage you to grow your wealth by taking action early. This will enable you to reap fruitful benefits in the near future and live the life you desire.
*Trading Economics: https://tradingeconomics.com/hong-kong/interest-rate
^It is projected based on the following assumptions (i) lump sum payment with levies (if applicable) is paid in full as planned; (ii) neither death benefit nor surrender value has been or will become payable at policy maturity; (iii) levy (if applicable) is not included in the calculation; and (iv) throughout the policy term, the notional amount of 5-Year GoalSaver remains unchanged.
#5-Year GoalSaver is a limited offer and acceptance of your policy application is subject to product availability at the time of application. We reserve the right to decline the application of 5-Year GoalSaver at any time. Each person only can apply for one policy, either as a policy owner or insured.
The above content is reviewed by Mr Daniel Lau - Head of Investment Proposition of AXA Hong Kong and Macau.
Terms and conditions apply. For details, please refer to the product brochure and policy provision.
No warranty or responsibility is assumed by AXA Hong Kong and our related or holding companies regarding non-infringement, security, accuracy, completeness, adequacy, reasonableness, fitness for a purpose or free from computer viruses in connection with the information and materials provided. AXA Hong Kong and our related companies and holding companies do not accept any liability for any loss, damage, cost or other expense, whether wholly or partially, directly or indirectly, arising from any error, inaccuracy or omission of the information and materials to the extent that such liability is not excluded by law.
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