Post Moratorium: Higher Savings?

In a Starbiz report (26 October 2020), Yvonne Tan reported that despite low rates offered, banks continued to see surge in deposits since March 2020. Many banks have seen double digit growth in deposits. Surprisingly, it is in current account and savings account (CASA).

As at end August 2020, deposits in CASA increased by 20% on year-on-year basis. Fixed deposits have remained flat. Banks love CASA because it improves their margins. Individuals or some corporates do it, because it may be required for an eventuality. Retail activity on stock market also improved, with bank rates moving “south”. Fixed deposit rate for 3-months is just about 1.6% compared to more than 2% year ago. One year rate is just 1.85% p.a. (Maybank) (OPR is just 1.75% p.a. since July).

 

Source: https://regionweek.com/

 

Who loses? The depositor/saver especially the conservative older person who may not adjust portfolio to meet changes in rates. Yap Ming Hui suggests several ways to increase return (Starbiz, 26 October 2020). Three investment alternatives suggested include:

·       Money market funds;

·       Bond funds; and

·       REITs

 

Each has its good and not so good points. Money market funds are low risk but average return is 2.37%. Bond funds as opposed to direct bond investing, will mean regular dividends with annual average return of 4.99%. REITs is a way to be in a property portfolio based on rental income. Dividend yield (trailing 12 months) for Bursa Malaysia REIT Index stands at 5.1%.

But why is there higher savings – because of caution arising from Covid-19 pandemic and other uncertainties. Higher savings means lower domestic consumption. That lowers sales for businesses. GDP is negatively impacted, unless banks are able to channel funds for private investment. A downward spiral begins and deflation will disincentivise further investment and so on. For the Government, it is an opportunity to float retail bonds for 5 years at 5% rather than 2%. That will provide funds for public investment. What say you MOF?

 

References:

1. How to increase the return of your FD, Yap Ming Hui, Starbiz, 26 October 2020

2. Higher savings, Yvonne Tan, The Star, 26 Oct 2020