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I saw this DBS deal on our BIGScribe Facebook Group BIGS World that looked kind of attractive.
DBS came up with a short duration savings account targeted at young adults to save money.
I heard of a few versions of how this work from friends and got really confused.
Is this better than the other hurdle savings account that I covered in my best Singapore short term savings account 2017?
So I decide to take a look.
What BYOB and SAYE is About
Be your own boss looks to be a scheme from DBS to encourage young working adults to save.
To be eligible for this, you must be between 18 years old to 30 years old. This effectively eliminate old men like myself.
You must also not having a salary credit arrangement with POSB/DBS bank from 01 Sep 16 to 28 Feb 17.
With BYOB and SAYE, you get to enjoy annualized interest of 4%.
Now, there are caveats (always) to this. I will explain later.
To be eligible for this interest you need to sign up for BYOB.
You need to do the following:
- Signed up for BYOB (link here)
- Credit salary into a POSB/DBS account in your own name
- Open a SAYE account during this period and select the account in #1 to debit the money to fund this SAYE account. You need to continue
- Hold an existing POSB/DBS credit or debit card or open a new POSB/DBS credit or debit card.
All this is not too hard.
To make it even better, if you sign up before 30th Sep 2017, credit your salary to a DBS account, and open a SAYE account before 31st Dec 2017, you will get a $88 cash gift, that is credited to your salary bank account.
The interest earned is 2% + 2%. Why is this not 4%?
Because there is a difference in the interest earned. The first 2% gets accumulated in your SAYE account.
The second 2% gets accumulated in your e-WALLET DBS Paylah.
Let me try and explain below how much you could earn.
How the Returns of the SAYE is Computed
The following table is taken from DBS’s terms and conditions (there is a few scenarios, but I will not put all out, do read up about it):
This table illustrate very well the conditions required for you to receive both 2% interest.
For that to happen, you have to ensure you continue to credit your salary into a POSB/DBS account, funnel money into a SAYE account, spend 5 transactions on your credit/debt card, not withdraw money from your SAYE account.
(a) shows the base interest all accounts will earn. This is not surprising.
(b) is an interest that you will only receive it after 1 year and 2 years respectively. So you will receive twice. The interest is computed monthly. This is to ensure you meet the criteria.
You stand to earn 2%/yr. On a monthly basis the interest you will earn is 2%/12 months = 0.17%/mth.
The interest you earned is what is accumulated in the SAYE account:
- there will be interest earned on the interest
- if you do not spend 5 transactions on your credit/debit card, you will still earned this 2%
- if you withdraw money at any point from your SAYE account, the interest from month 1 up till that month is forfeited (as a rule of thumb, don’t withdraw if you wanna earn!)
- if you do not add to your SAYE account that month, the money in your SAYE account will still earn interest
- if you do not credit anymore salary into your DBS/POSB account after the first month, you can still earn interest on your SAYE account
(c) is an interest you will receive monthly into your DBS PayLah account.
- there will NOT be interest on interest
- if you do not spend 5 transactions on your credit/debit card, you will not earn interest for that month
- if you withdraw money from your SAYE account, you will not earn interest for that month
- if you do not add money to your SAYE account, you will not earn interest for that month
- if you do not credit salary into your DBS/POSB account, you will not earn interest for that month
- The 2% interest on your SAYE account is very forgiving, except if you withdraw money. It is targeted to lock you in
- The 2% bonus interest into your DBS Paylah is not very forgiving. If you don’t do any of the 3 and withdraw money, you do not get to earn that amount
- The interest earned is not 2% on the monthly amount, but 0.17%. So the effective interest earned in a realistic manner is much smaller than 2%. This is because you are adding money little by little over 2 years instead of one lump sum.
The Hurdles to get these Interest are Not Tough
I like this account in that, compare to the other hurdle accounts, the hurdle is very manageable:
- There is no minimum salary credit
- The transfer to SAYE is between $50 to $3,000/mth
- 5 minimum transactions is not hard to achieve
Compare this to:
- Having to purchase investments and endowments
- Have home loan
- Spend $500/mth in credit card spending (where the endorsed transactions are severely limited over time)
You can Layer with POSB Cashback Bonus and Credit Card Rewards
From what I can see, it is not stated anywhere that choosing to get these interests bars you from the incentives from DBS/POSB other rewards program.
This means that you can still enjoy the credit card points you garnered from spending on the credit cards.
Your credit card spend and salary credit can go towards fulfilling the minimum 3 items to be eligible for POSB Cashback Bonus
Money in the DBS PayLah will eventually need to be Spent
The 2% interest that is credit into your DBS Paylah looks to be a move to encourage us to used DBS Paylah as the e-Wallet medium for our spending.
This means that, in my concept of a Wealth Machine, you cannot reinvest this interest earned to compound more money.
Do be aware of this.
The saving grace is, money is meant to be spent. You save so that you can spend next time. You spend now you cannot spend next time.
You need to evaluate against the Opportunity Cost of committing to SAYE
The opportunity cost is that you may be able to earn a higher risk adjusted return if you deploy your money in other places.
If we talk about risked adjusted return, it means our choices are limited to low risk deposits and savings account.
If you put your money for 1 or 2 years in a Singapore Savings Bonds, it will net you 1.23%/yr.
There are a few hurdle saving accounts such as the OCBC 360, UOB One Account, BOC Smartsaver and you will have to compare this offering against them.
When you evaluate, you have to be realistic how many of those hurdles you are able to meet, and what interest you could stand to earn.
- OCBC 360: 1.5% to 1.8% realistically. The credit card spend may be a stretch for some, but not others. SAYE’s 2% is higher than this, but SAYE is only on the money you debit and credit into the SAYE account, while for 360, your existing funds which could be large (up to $70,000) gets to earn this rate
- UOB One Account: 1% to 3.33% realistically. UOB One account favors those with large qualified credit card spend since that is the base requirement. They have restricted a lot of the transactions but if you spend a lot on retail transactions this might be worth it. SAYE is only on the money you debit and credit into the SAYE account, while for UOB One, your existing funds which could be large (up to $50,000) gets to earn this rate
- BOC Smart Saver: 1.75% to 2.55% realistically. Again the difficult hurdle is the $500 mil credit card spend. However, BOC Smart Saver’s interest look very competitive to the 2%. SAYE is only on the money you debit and credit into the SAYE account, while for BOC Smart Saver, your existing funds which could be large (up to $60,000) gets to earn this rate
SAYE will win all hurdle saving accounts by virtue of having easier hurdles, and they could be layered with POSB Cashback bonus.
The 2% bonus interest credited into DBS Paylah may provide an advantage over these 3 accounts.
Suppose lets do a test. We compare the returns of putting $2,000/mth into SAYE versus a hurdle account which averages 1.75%/yr or 0.15%/mth.
The returns are shown below:
In the first place, the hurdle account’s interest is lower than that of SAYE + bonus. And to be fair we haven’t factor the amount you can earn from POSB Cashback.
The SAYE account and DBS Paylah combination looks more lucrative then the hurdle account.
Your mileage may vary depending on what is your interest.
Could you split a Lump Sum over 2 years? Is the SAYE Account Returns Better?
Since SAYE limits you to $3,000 a month over the 2 year duration, technically, if you have $72,000, you can divide them and contribute to the SAYE over 24 months.
Would the returns be better?
I do not think so.
Suppose you can choose to contribute $2000/mth for 24 months into a SAYE account. Compare this to having $48,000 in lump sum and deploying it in a hurdle account.
Let us simplify and take it that the hurdle account earns 1.75%/yr or 0.15%/mth.
The lump sum compounds the interest better. You get to earn $1,708 in total versus $1,014.
The opportunity cost is high because except for UOB One Account, most hurdle accounts require you to credit your salary into their account.
Subscribing to the SAYE means your options are limited.
If you already have a lump sum, depending on the amount, other hurdle saving accounts might be better.
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