Tong soon

08 May 2020

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General Investing

Why did OCBC terminate my Fixed deposit of 2.05%?

2 years ago, a dumb me had put in $60k into OCBC structured deposit, which would earn me a 2.05% p.a over 6 years. Im glad i got that back as OCBC exercised their rights to terminate this fixed deposit early.

Based on the current economic climate, wont banks be in need of money though? Im trying to understand how this all works.

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Aik Kai

08 May 2020

Banks earn money by margin. Simple example, You deposit with them $60K at 2.05% interest per annum. They take the money and loan to other people at 3% interest (or more) per annum. So they earn the difference in interest.

Banks need money now, of course. But with the economy so bad, it means loans are not doing well. If their loans are not doing well, they will lose more money if they have to pay you interest.

Simple example. OCBC loan a business $60K at 3% interest. If the business is not paying back the loan, OCBC is losing money by paying you 2.05% interest. To them, terminating your FD means they are saving cost as they don't need to pay you the interest.

Hope this helps in a bit.

Cheers

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