Inappropriate Structured Deposit is Inappropriate

“The joy of giving continues at UOB”, shouted the flier that Singapore’s second-largest bank stuffed through my letterbox earlier this week. It was a Christmas-themed advertisement for their latest structured deposit, the UOB Principal Guaranteed Structured Deposit: Growth Deposit – Series (11) – brackets and italics in original.

“Enjoy 7.5% Total Guaranteed Minimum Interest!” it blared, and you might think that was pretty great. But if you look in the fine print (which takes up two-thirds of the page), you’ll see it’s not a 7.5% interest rate – it’s a 1.26% interest rate over six years. By UOB’s standard, you could advertise “250% GUARANTEED INTEREST!”, and then point out in the fine print that it’s a 200-year deposit.

But that’s not the most egregious thing about this structured mumble swerve.

A further bullet-point touts the product’s “Up to 3.6% Potential Maturity Variable Interest”. You have to look down in the fine print again to find out what the variable interest’s based on and how it’s calculated, and it is a doozy…

The Maturity Variable Interest Rate shall be calculated as the product of (i) 1.2 and (ii) 5Y SGD swap rate minus 2Y SGD swap rate (i.e. 1.2 x {5Y SGD Swap Rate – 2Y SGD Swap Rate}) observed on the Observation Date. The minimum Maturity Variable Interest Rate is 0.75% and maximum Maturity Variable Interest Rate is 3.6%. The Maturity Variable Interest is payable only on the Maturity Date provided the whole Principal Amount is held with the Bank until Maturity.

Now, this might be just me… but I don’t know how many Singaporean aunties and uncles would want to get exposure to the 2y vs 5y SGD steepener. I don’t know how many aunties and uncles would know what a SGD steepener is.

And if you do the math on this product, it doesn’t seem very appealing at all. Your very-best-case scenario is that you get the full 3.6% payout after five years and eleven months; add that to the first five years of payments, and the equivalent interest rate works out to be almost bang on 1.75% for a six-year deposit.

Interest rates are low, but they’re not that low. You can go down the road to ICICI Bank’s Singapore branch and get 1.75% on a three-year term deposit, with a whole lot less lockup time.

So this product looks like a really bad deal for customers. It pays worse than a term deposit. It’s got a huge long lockup time. And it’s linked to something that customers won’t understand. What exactly are UOB trying to pull here?

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