Is Deposit Really a Safe Asset?
Deposit should be the safest investment among all the different asset classes that Singapore investors have access to. However, for investors who put their cash into deposit, the return of 0 to 1% is also the lowest. With annual inflation rate in Singapore at 4.6% last year, the net return after accounting for inflation is negative. Is it therefore worthwhile to put money into deposit given the high inflation last year?
Another question that investors have to ask – Is deposit really that safe?
For locals and foreigners who place deposits with Cyprus‘s banks, deposit is definitely not safe. Due to the recent EUR 10 billion bailout, depositors with more than EUR 100,000 will be taxed and the reported haircut could be between 40% and 80% of deposit. This will result in substantial losses for depositors.
This scenario in Cyprus is unlikely to happen in Singapore given the strength of our banking system and economy (Even Marc Faber mentioned during the CNBC interview in the above link that putting Singapore dollar deposits in Singapore banks is safe). However, Singapore investors must not be complacent and should constantly keep a lookout for investment opportunities that beat inflation. Diversification is still the key to reducing the risk and investors should avoid putting all the money in seemingly safe deposit.