My mum was asking me about a 3% p.a. FD rate that she saw in the newspapers the other day. The minimum sum required was $40,000.
3% for a fixed deposit at this time?
Surely there was a catch. To be precise, the rate she saw was 3.08% p.a.
The deal was too good to be true so I went to have a look at the advertisement.
In big bold print, there was the 3.08% p.a. figure. Beside it were the terms:
10/10 S$ time deposit rates* of 3.08% p.a. for the first 10 days and 1.05% p.a. for the next 10 months.
*effective interest rate of 1.11% p.a.
Just as I suspected, there was no free lunch. The bank gives you 3.08% p.a. for only ten days and then locks up your money with a 1.05% p.a. rate for the next ten months.
As pointed out in the advertisement, the effective interest rate was only 1.11% p.a.
What the effective rate means is that if you were to put your money in a FD with an interest rate of 1.11% p.a. for the same period of time, you will earn the same amount of interest as this promotion.
I wonder how many people are actually mislead by such marketing gimmicks.