So, I went to a bank to get a Time Deposit account (also known as a Fixed Deposit account). From days of yore a fixed deposit account attracts higher interest rates than a normal savings account, for the simple reason that you commit to leave your money in the bank for a fixed period of time (without withdrawing it). This means that the bank can count on your money being available should it need the money to invest or to lend out.
The bank offered an FD (fixed deposit) interest rate of 1.5% interest per annum (fictitious interest rate). I requested to open an account. The banker was smooth enough at first.
Banker: Do you need these funds after the FD term is over?
Banker: Might I interest you in another type of account that will give you 3% interest per annum instead?
Me: 3%? Nice! Tell me more! Is it an FD account?
Banker: No... it is a savings account. Let me explain to you. However, I need to ask you a few questions.
Me: (still naive and clueless) Oh! Ok!
Banker: What are your household expenses?
Me: I don't really know.
Banker: Do you save at least $2000/mth?
Me: I think so.
Banker: Oh good! Then, here is what I propose. How would you like to park your $XXX FD money into a different type of account and every month, you contribute a further $2000 to an XYZ Insurance's endowment plan linked to this account. This will give you an interest rate of 3%. The advantages are that you can withdraw your money any time... you earn a higher interest rate than an FD.
I waited for the gentleman whom I shall now call Wolf in Sheep's Clothing (WiSC) to detail the...
(1) guaranteed payout and the non-guaranteed payout Click HERE to understand guaranteed VS non-guaranteed.
(2) the maturity period (Click HERE to understand maturity period)
WiSC didn't. His sales pitch focused on (a) higher interest rate (b) can take out money anytime. Both facts were true BUT.... BUT... BUT...
There is a reason for the higher interest rate. The endowment plan is a RISKIER proposition VS FD. The money you put in an endowment plan, is used by the insurance company to invest. You thus open yourself to investment risk. The guaranteed payout is less than the money you put in. The non-guaranteed payout depends on the skills and foresight of the investment fund manager. If he invests well, I get returns. Basically, someone else gets to experiment with my money whilst I bear the risks. I don't even know who that fund manager is. Why would I want to open myself to that risk?
Can Take Out Money Anytime
Of course, you can take out money anytime. You can take out money anytime from anywhere. After all, it is your money. From an FD account, I can also take out money anytime. Simply, I don't get the interest rate of 1.5%. I have to content myself with a much lower interest rate. However, I recover my entire principal sum.
In contrast, in an endowment plan, if I take out my money before maturity, I get much less money than I put in. I do NOT recover my entire principal sum.
I nicely declined, after WiSC had repeated points (a) and (b) a few times. He wasn't giving me full information and he was wasting my time rehashing 2 points again and again. I tried to nicely brush him off.
Me: Hmmmm... I really prefer the FD. Could you please open my FD account for me?
WiSC: Hmmmm... why don't you hear me out before you open your FD account? You may decide you want to open the other type of account.
Me: **Still nice** Hmmmmm... why don't you open the FD account now? Then, give me the fine print to read. I am not good at internalising information through my ears. I can always come back and open another account. I suppose I can scrape together another $XXX for the new account.
WiSC: Why don't I open your FD account for you? It takes 15 minutes. In that time, my colleague can tailor an endowment plan to your NEEDS?
Wah! Now he was getting reinforcement. They were BOTH going to pressure me to buy an endowment plan. The running commentary through my head was, "I don't NEED an endowment plan. Endowment plans are for people with no self-discipline. Unless the insurance company hounds them for premiums, these people don't have the fibre to put the same amount of money in the bank every month. Basically, you give the insurance company a cut of your savings so that the insurance company can force you to save. Capisce?
Then this lady with a wide smile that looked like a wolf's snarl, sat down in front of me and opened her laptop. She started asking questions I was not prepared to answer. Salary. Savings.
Me: **Still trying to be nice... so I delivered it with a giggle (and my best little girl voice), and a wide smile that looked like a wolf's snarl** Heeheehee! I find it a bit irritating... heeheehee... that you guys are trying to hard sell me an endowment plan I don't want. Hahaha! I am quite familiar with endowment plans. If you want, you can give me the payout table and I will explain it to you? Hee!
That got their attention! There was an uncomfortable silence for a bit before he said that he was going to proceed to open my FD account. At the end of that, he had to give me my temporary online banking ID. He wrote it on the same piece of paper where he had scribbled some points when explaining the "other type of account". I did not want to carry around a tiny slip of paper in case I would lose it. I asked for the full page.
WiSC REFUSED! He was afraid that I would take his incriminating written words and complain.
I am so disappointed. Banks were created on the basis of trust. That is why people put money in banks. Trust. The last thing I expected was a Sim Lim Square sales style from a bank. Tell the truth but hide some.