Singapore banks raise promotional rates in race for deposits

AS interest rates rise, the jostle for deposits has also begun.

Banks in Singapore have launched a series of fixed deposit promotions in the past month, with rates going up to 1.3 per cent for 24-month tenures, as of this week.

While board rates have largely remained unchanged, observers expect promotional rates on fixed deposits to continue inching up amid rising rates. Most banks The Business Times spoke to also said they revise promotional rates based on the broader interest rate environment and market movements.

A fixed deposit, also known as a time deposit, is a type of account that pays depositors a fixed amount of interest over the period for which they have committed to deposit their monies. 

Unlike current or savings accounts, fixed deposit accounts require customers to “lock up” a certain sum for a fixed amount of time.

Typically, banks offer higher amounts of interest to depositors who commit to leaving their funds in the accounts for longer.

Bank of China Singapore, which has adjusted its promotional rates 4 times since Mar 21, is among the more aggressive lenders in the deposit fight. 

Its most recent promotion, launched on Apr 18, shaved minimum placements to S$5,000 and offers 1.1 per cent per annum (p.a.) for a 12-month tenure and 1.3 per cent p.a. for a 24-month tenure.

Most banks require minimum placements of S$20,000 to S$25,000 for depositors to qualify for their promotional rates. 

Bank of China Singapore’s earlier promotion, launched on Mar 21, offered 1 per cent p.a. for a 24-month tenure, with a minimum placement of S$50,000.

Several lenders have also introduced new tenure options. 

OCBC, for instance, launched a 24-month tenure in March with a promotional rate of 1.28 per cent p.a.. Placements for this longer tenure have more than doubled in the past month, said the bank’s head of deposits Na Kok Peng.  Maybank’s head of products and investment solutions Alice Tan also noted customers’ interest in longer tenures. The bank’s ongoing promotion, which started on Mar 16, offers 0.9 per cent p.a. for a 12-month tenure, 1.25 per cent p.a. for a 24-month tenure and 1.4 per cent p.a. for a 36-month tenure, with a minimum placement of S$20,000 in fresh funds.

Singapore’s largest lender DBS has not changed its fixed deposit rates since December 2021, but its board rates are among the most competitive in the industry.

The bank’s senior rates strategist Eugene Leow noted that while people typically gravitate towards safer assets, such as government bonds, in volatile times, these too are facing headwinds from rising rates.

Shorter-term instruments such as fixed deposits might therefore appeal to more conservative investors, he said.

CIMB's head of consumer banking and digital Merlyn Tsai said some of the banks' customers have increased fixed deposit holdings in an effort to stabilise portfolio returns amid recent market volatility.

While overall consumer deposit balances at the bank have grown by about 5 per cent since the start of the year, Tsai believes this is more a function of higher rates than a result of risk aversion.

Thilan Wickramasinghe, Maybank IBG Research’s Singapore head of research, agreed that higher deposit rates may pull liquidity from other asset classes.

At the same time, competition for deposits may increase amongst banking players as they try to manage their cost of funding in a rising rate environment, he said.

Andrea Choong, an equity analyst at CGS-CIMB Securities, expects a “progressive shift” rather than a “stark flight” from CASA (current and savings accounts) to fixed deposits.

“Although Singapore dollar rates have been creeping up year-to-date, we think the rise of fixed deposit rates by banks will be gradual given the ample liquidity in the system, and therefore a lower need for banks to compete for funding,” she said. 

Choong pointed out that loan-to-deposit ratio across the banking sector was relatively low, at 81.2 per cent, in February this year. 

Some depositors may also decide to wait out for even higher interest rates, given the Federal Reserve’s current rate-hike trajectory, she added.

The Fed has signalled in recent months that monetary tightening is shifting into higher gear. In March, it raised the benchmark federal-funds rate to between 0.25 per cent and 0.5 per cent, in the first rate increase since 2018. 

Meanwhile, a Reuters poll earlier this month had economists forecasting 2 back-to-back half-point rate hikes in May and June this year.