The thing about savings plan...
I’m kind of happy about my blog – I’ve been receiving real great comments from people around me and it has been real encouraging, so I shall blog more. In fact, I’ve just got 2 separate ideas that I just encountered in real life and I shall attempt to show you supporting readers an economic interpretation of the 2 ideas. One is about selfish Vs self interest and the other is on savings. I shall discuss the savings one first because I am extremely pissed off about what happened this morning.
Let me give a brief summary of what happened. I got a call yesterday by this person who was asking me out to do some survey conducted by American International Group (AIG) and I actually agreed. How wonderfully weird and unlike me to do that especially since it’s a meeting at MOS burger. Never mind, I went there met the person and I realised she’s from AIA (I should have guessed!!!) and she’s trying to sell to me some life savings plan where they are so kind as to help me ‘save’ by saying I need to! And I get a decent return of 3.5% a year on interest as well as the ability for me to withdraw anytime I like. And it also serves as a life insurance too!!! How wonderful right?
Let me debunk all this by giving you what I really think of such savings plan. And the whole joke is that I’m planning to be an actuary, so I was really very interested in the plan (actually the calculations and stuff involved) than I was actually interested in signing up.
Firstly, I think having a forced savings plan is great. It does curb your spending and force you to save. That’s very good for it teaches youngsters a bit about financial management, and let them have the feeling of independence, that they are finally saving on their own (And I think this is one key sales technique). Most importantly, the returns is seriously speaking very good -- 3.5 % compared to the current POSB savings bank interest of <0.5%? And they offer you a premium just in case you are involved in an accident. But all these are possibly the few merits which the offer has.
Well, why do I say that? Let me criticise first on the calculations of interest rates and stuff. I saw some of the figures and basically you actually get back less than what you put in if you were to take out your cash in the first 10 years. Only after a certain year, then you actually get back more and the longer you keep your money the more money you get back. Sounds great right? A potential money-making scheme and it all accommodates your own savings pattern.
I think I shall clarify certain stuff (I think the person trying to convince me was nice in the sense that she herself is honest to a very large attempt, guess MAS did a good job). The 3.5% interest rate is not fixed and is all dependent on the economic situation. I mean you can expect it to rise as the economy improves and drop when the economy is a slump. So please do not run away with the idea that you will always just earn 3.5%. Anyway, it is really better than fixed deposits or any other types of savings that bank offers. And the real interest rate (after discounting inflation) is what I estimate to be around 2.8%? That’s still real decent.
The only problem comes if you cannot commit. If you have no intention of having a commitment with the bank (I estimate that you need 20 years at least or else I doubt that it is actually worth it), please do not sign up. It might even be better that you put your cash in POSB instead. Cause you are sacrificing quite a lot of liquidity, so that is really the opportunity cost of having the savings plans. For people who don’t mind, please go ahead if you intend to save. Its good as it does ensure that you save now and that when you are like 40, you will have money to purchase certain things you want.
Besides the idea of commitment, the other issue is whether you can make a better investment decision. I think a life savings scheme should solely be used for just that – to save (just like what the CPF board does to your salary). If you intend to earn returns and things like that, you might wish to consider other assets like stocks and shares, unit trusts, equities, bonds and so on. I shall not comment on my own preferences, but please bear in mind that all these investments have a certain amount of risk involved, so just keep in mind that you should have some form of savings which you will not touch as part of your investment portfolio.
I think I should elaborate on what the company does with the cash. AIA is a big bank cum insurance firm after all so they actually gain returns from it by investing here and there. So of course the longer the time period you keep your cash with them, the better things is for them as they can put the money in long-term investments which tend to offer better returns. That’s the logic why they want customers to keep the money there longer. So when you sign up any plan, please make sure that it is a reliable big name corporation you are signing with and please ensure that they do not have a big risk portfolio so as to guarantee that you get your money back.
I did not signed up with the lady today because I am unsure of my commitment, my own asset management decision as well as I do not want to make an uninformed decision. Please think thrice before signing anything. And do make sure you read through every inch of the document.
I will love to elaborate more about saving (it is a flow concept so you are constantly saving) well savings is a stock idea. Anyway, for people who do Economics, please note that above is the micro view of saving, that you are just setting aside money so that it can be used in future. For the macro view of saving, it is different and we will be more concerned with National Savings. Will talk about it in future.
P.S. Seriously speaking, I still do not knows what goes on in the calculation of all these insurance stuff. Will let you guys know once I figured things out.
Let me give a brief summary of what happened. I got a call yesterday by this person who was asking me out to do some survey conducted by American International Group (AIG) and I actually agreed. How wonderfully weird and unlike me to do that especially since it’s a meeting at MOS burger. Never mind, I went there met the person and I realised she’s from AIA (I should have guessed!!!) and she’s trying to sell to me some life savings plan where they are so kind as to help me ‘save’ by saying I need to! And I get a decent return of 3.5% a year on interest as well as the ability for me to withdraw anytime I like. And it also serves as a life insurance too!!! How wonderful right?
Let me debunk all this by giving you what I really think of such savings plan. And the whole joke is that I’m planning to be an actuary, so I was really very interested in the plan (actually the calculations and stuff involved) than I was actually interested in signing up.
Firstly, I think having a forced savings plan is great. It does curb your spending and force you to save. That’s very good for it teaches youngsters a bit about financial management, and let them have the feeling of independence, that they are finally saving on their own (And I think this is one key sales technique). Most importantly, the returns is seriously speaking very good -- 3.5 % compared to the current POSB savings bank interest of <0.5%? And they offer you a premium just in case you are involved in an accident. But all these are possibly the few merits which the offer has.
Well, why do I say that? Let me criticise first on the calculations of interest rates and stuff. I saw some of the figures and basically you actually get back less than what you put in if you were to take out your cash in the first 10 years. Only after a certain year, then you actually get back more and the longer you keep your money the more money you get back. Sounds great right? A potential money-making scheme and it all accommodates your own savings pattern.
I think I shall clarify certain stuff (I think the person trying to convince me was nice in the sense that she herself is honest to a very large attempt, guess MAS did a good job). The 3.5% interest rate is not fixed and is all dependent on the economic situation. I mean you can expect it to rise as the economy improves and drop when the economy is a slump. So please do not run away with the idea that you will always just earn 3.5%. Anyway, it is really better than fixed deposits or any other types of savings that bank offers. And the real interest rate (after discounting inflation) is what I estimate to be around 2.8%? That’s still real decent.
The only problem comes if you cannot commit. If you have no intention of having a commitment with the bank (I estimate that you need 20 years at least or else I doubt that it is actually worth it), please do not sign up. It might even be better that you put your cash in POSB instead. Cause you are sacrificing quite a lot of liquidity, so that is really the opportunity cost of having the savings plans. For people who don’t mind, please go ahead if you intend to save. Its good as it does ensure that you save now and that when you are like 40, you will have money to purchase certain things you want.
Besides the idea of commitment, the other issue is whether you can make a better investment decision. I think a life savings scheme should solely be used for just that – to save (just like what the CPF board does to your salary). If you intend to earn returns and things like that, you might wish to consider other assets like stocks and shares, unit trusts, equities, bonds and so on. I shall not comment on my own preferences, but please bear in mind that all these investments have a certain amount of risk involved, so just keep in mind that you should have some form of savings which you will not touch as part of your investment portfolio.
I think I should elaborate on what the company does with the cash. AIA is a big bank cum insurance firm after all so they actually gain returns from it by investing here and there. So of course the longer the time period you keep your cash with them, the better things is for them as they can put the money in long-term investments which tend to offer better returns. That’s the logic why they want customers to keep the money there longer. So when you sign up any plan, please make sure that it is a reliable big name corporation you are signing with and please ensure that they do not have a big risk portfolio so as to guarantee that you get your money back.
I did not signed up with the lady today because I am unsure of my commitment, my own asset management decision as well as I do not want to make an uninformed decision. Please think thrice before signing anything. And do make sure you read through every inch of the document.
I will love to elaborate more about saving (it is a flow concept so you are constantly saving) well savings is a stock idea. Anyway, for people who do Economics, please note that above is the micro view of saving, that you are just setting aside money so that it can be used in future. For the macro view of saving, it is different and we will be more concerned with National Savings. Will talk about it in future.
P.S. Seriously speaking, I still do not knows what goes on in the calculation of all these insurance stuff. Will let you guys know once I figured things out.
0 Comments:
Post a Comment
<< Home