The Right Start!

Anata Wang

Young savings account structured very similar to Fixed Deposit accounts hence they provide investors higher interest rates compared to conventional savings account. Nevertheless there are intently designed to discourage withdrawals by imposing minimum withdrawal amounts or lower interest rates applied if withdrawals are made frequently. 

It is never too young to start saving some money and although there are many ways to instill this saving concept, I personally think that opening a child savings account is an important life lesson that any child could possible learn. That is to put money into a bank and let it grow! Some parents would argue that it is better to invest the money in stocks or unit trusts. Certainly there is nothing inherently wrong with this strategy but for small savings simple enough for kids to understand we should look for a savings account for children.

There is no shortage of children savings account in Malaysia and a key difference is the age eligibility which is either less than 18 years old (and in some cases below 12 years old). Other notable key features are:
1. Remember small savings. Hence higher interest rates on the first RM50,000 or RM100,000.
2. Discourage withdrawals. Limited number of withdrawals/month. Limited withdrawal method (OTC only). Lower interest rates applied for frequent withdrawals and in some cases extra charges for each withdrawal thereafter.
3. Cash incentives for academic excellence award. Free personal accident coverage.

Hence forth I have compiled a list of young saving accounts in Malaysia (first taken Personal Money October 2012 issue) and modified it with more useful information. The full spreadsheet can be obtained from this link: Comparison_Junior_Savings_Account_in_Malaysia.xlsx It's better to download it and view using Excel software.

Snippet taken from the spreadsheet. It's too large to fit in a single picture!

Here's my take on the top accounts one should choose.

Must have account for small savings.
AmBank Group - AmGenius. 3.00% interest rate for the first RM50,000. Free PA coverage 5x balance amount, max coverage of RM50k. Interest credited monthly.

OR

RHB Bank - Junior Savings. 3.02% interest rate for the first RM100,000. Free PA coverage 5x balance amount, max coverage of RM50k. Interest credited bi-annually.

Put in minimum amount now or during exam calender year.
OCBC Bank - Young Savers. 2.85% interest rate for the first RM50,000. Just put in minimum amount (check with bank) required to qualify for academic excellence award (UPSR, PMR, SPM and STPM). Account must be one year old so time it correctly.

Maybank - Yippie. 2.90% interest rate for the first RM50,000. Just put in RM1000 into the account to get the free coin box and for the cash incentives for academic excellence award (PMR, SPM, STPM and degree) on the exam calender year. You also get free PA 7x balance amount, max coverage of RM50k.

Alliance Bank - Alliance Save Pendidikan. Just put in RM300 on the exam calender year to qualify for cash incentives for academic excellence award (UPSR, PRM and SPM).

Must have account for large savings:
Affin Bank - Junior Saver. >RM100k 2.85%, >RM500k 3.10%, >RM1mil 3.38%. The best interest rate above savings of RM100k. Free PA coverage 5x balance amount, max coverage of RM50k.

Anata Wang

During the 2008 financial crisis, global banks in the western world collapsed under the strain of ill managed borrowings and many people started to question the security of their savings. Like in any other banks, the money you deposit is never guaranteed and the same applies to banks in Malaysia. Luckily in Malaysia, one can save their money into a regulated bank that is under protection by Perbadanan Insurans Deposit Malaysia (PIDM). PIDM protects your bank deposits and will promptly reimburses you on your insured deposits should a member bank fail and there is no charge for this insurance protection.  Keep an eye out for the logo at your banking institution. 

Note that it only covers protection up to RM250,000 per institution so if you have a million, be sure to spread it across 4 different banks. Remember it is never too young to start saving. A RM300 per month savings for your newborn to the 18th year would have grown into RM87,000 (in which from there you will profit RM22,000 from interest alone!). A right start for his/her tertiary education plus your kid would have appreciated the financial lesson that aboi has taught you.

Guna Otak Sikit

Guna Otak Sikit literally means "Use Your Brain laa". This is a collection of comments by various netizens as well as some of my commentaries. Just two days ago the government has clarified that it has NO intentions to cut car excise duties in Malaysia, what the hell happened to our automotive liberalization promise in 2015? Talk cock sing song again? What comes after that is even more surprising: flexi-payment schemes offered by banks specifically to students and fresh graduates that offer LONGER repayment periods can help the rakyat (people) deal with high car prices. While duties & taxes generate in total RM7 billion in revenue to the government as of 2011, it is also inflating car prices by as much as 100 percent.

Back in the 70s, the usual car repayment period was a mere three years. Then it went up to five, seven and we even have nine years now. A longer repayment period means the banks will make more profit from the interest because the hire purchase interest is computed on a fixed scale at the start of the loan, rather than reducing amount like we see for houses. Take an example of a Honda City bought using RM60,000 (30k down payment) with purchase loan of 3% interest rate would incur the following charges:-

Repayment over 5 years, interest amount of RM9,000, 15% of principal amount. Monthly installment of RM 1150.
Repayment over 7 years, interest amount of RM12,576, 21% of principal amount. Monthly installment of RM 865.
Repayment over 9 years, interest amount of RM16,140, 27% of principal amount. Monthly installment of RM 706.
*Repayment over 12 years, interest amount of RM21,648, 36% of principal amount. Monthly installment of RM 567.

This is the best way to lose even more money and to use up future earnings now. Take 7 to 9 years, one has an extra RM159/month. In 2 years one would have an additional RM3816 but remember you are paying an extra RM 3564 in interest. So you technically save RM252 in 2 years which is RM10.5 a month! What the oook. Extending the repayment period merely reduces the quantum of the monthly installments. In reality it will make VERY little difference to the buyer's disposable income once interest amount is taken into account.

Personally I would like to see market prices for cars and market prices for petrol. You heard it right, cheap cars but expensive petrol. Then I will have the choice of how to spend my money. If I don't drive, I don't really pay for expensive petrol and if I choose to drive to Ipoh for Dim Sum, I have to pay for expensive petrol.

In fact it makes a lot of economic sense to totally abolish the duties & taxes on cars and slash subsidies. Lower revenue is compensated from slashing subsidies and the increase of disposable income for people has a multiplier effect on the consumer industry thus indirectly leading to higher sales tax revenue. Some argue that by lowering car prices would lead to 1) increase in  traffic 2) used car dealers going bankrupt. Both are not true.

Total vehicle sales in Malaysia has reached near saturation stage since 2005. The market is saturated because there is little room to grow (the only way is a growing population) as Malaysia has one of the highest vehicle-to-population ratio in the world. We have 20 million vehicles travelling on the road (from Malaysia Automotive Institute statistics) to a population of 28 million people. If cars are to be cheap, one can say that they will only replace existing cars, not adding more vehicles on the road.

Second by reducing the excise tax slowly, say by 20 percent basis year by year or the used car industry may collapse. This way disposable income can be increased by RM70 to RM100 for a monthly car loan of RM700. This will give ample time for dealers to clear existing stock and at the same time help the people cope with escalating cost of living. Moving forward, you should know how to vote if you wish for the following. The choice is a no brainer, it is backed by numbers and data. One just would only need to lay it out for the people to understand...like what I am doing =)

Do spend time and read this as well:http://www.financetwitter.com/2012/04/here-are-reasons-why-you-shouldnt-buy-a-new-car-now.html

The Yellow Fever

This is meant to be a short post, it's Sunday night anyway =p These dodgy schemes of gold investing have stole the limelight in the newspapers for several days. We have seen many people from all wakes of life investing into gold with the promise of grandeur returns (not yearly ones but monthly lolx). I put in picture to explain how these schemes work on a high level basis:

Life is soooo goood la....how does it pay 1.5% Hibah per month? Remember the 25% upfront profit? By calculation G-firm is able to sustain the 1.5%*12 = 18% per annum returns of Hibah to a customer for a full year. This model works fine when GOLD PRICES KEEP GOING UP or NEW CUSTOMERS KEEP COMING. The mantra buy low, sell high only benefits the firm not the customer. When the deal is too good to be true, IT IS USUALLY A PONZI SCHEME =) Here's another good read, in fact the best explanation I have seen from another blogger: http://1-million-dollar-blog.com/genneva-gold-scam-explained/

To the disbelieve of ordinary folks, gold is just like any commodity. IT DOES NOT GO UP ALL THE TIME.

Then why has it spiked up these few years? Demand from China/India? Neh....back in 2005 (not in the chart below), only 16% of gold's demand went to investment. Now it is a staggering 40%!! Everybody's doing it which suggest that a dangerous amount of speculation is on board which could potentially develop into panic selling similar to the tech bubble burst.

*World Gold Council i an association whose 22 member comprise the world's leading gold mining companies, representing approximately 60% of global corporate gold production.

If you have gold now, it's time to review your holdings. If you are thinking about getting into gold, think twice and HARD. A few useful indicators to look out for. 

No 1. If the central banks of major economies start raising interest rates, it is tough for all investment classes which includes gold. Because there is little point in putting cash into the banks when interest rates are low, people will buy gold as a hedge against inflation.

No 2. If the US dollar has strengthened, decrease in gold prices will follow. This is because people use gold as a substitute/hedge for the world's reserve currency.

IMHO I do not see both no.1 and no.2 happening in early 2013. Unless growth picks up again in the US, will need to see what happens after the US elections in Nov 6 2012 (forget EU, it's a big mess) the world economy looks bleak for next year. If US does recover better than 2012, gold would not hold around current prices for another year.

Since this is a short post, I will probably re-edit this at a later date with more charts/data.