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Winning financial products

DURING the year, we at YOURMONEY have come across many interesting new financial products. Here's a roundup of what could work for you in view of the more challenging outlook for 2009.

DEPOSITS

A savings account with a bank is one of the safest places to keep your money. Besides, deposits with banks operating in Malaysia are insured by Perbadanan Insurans Deposit Malaysia. Savings accounts also give you the convenience of withdrawing money whenever you need, usually at little or no cost. The trade-off for the security and flexibility is getting paid interest or profit rates of less than three per cent a year. That is why many people move extra cash sitting in their savings account into something that pays more, such as fixed deposits, despite having less flexibility when it comes to withdrawing their money.

There are fees that may be charged for certain transactions done on your savings account. Some savings accounts may charge semi-annual fees, and certain transactions over a set monthly limit, such as ATM cash withdrawals, may also incur additional costs. Non-active or dormant accounts also usually attract bank charges, so it would be a good idea to close an account that you no longer use.

If you carry out only a limited number of transactions a month on your savings or current accounts every month, you may want to consider a no-frills alternative.

Basic Savings Account (BSA) and Basic Current Account (BCA)

All banks are required by Bank Negara to offer Basic Savings and Current Accounts. The initial deposit to open these accounts are very much lower than regular accounts. You can open a basic savings account with an initial deposit of RM20 and RM500 for a basic current account. Money kept in a basic savings account also enjoy interest income.

These accounts operate in the same way as ordinary savings or current accounts except that they enable you to perform only basic transactions, and at a minimal cost or free. For example, cash withdrawals at ATM machines are free for the first eight transactions, and you can only do six over-the-counter transactions a month.

An individual is allowed to open one BSA and one BCA per bank, while a Small and Medium Enterprise can open one BCA per bank. Similar to a regular current account, an individual must be 18 years or older to apply for a BCA. All BCA applicants must have an introducer.

FIXED-INCOME

Softening interest rates worldwide and an expected slowdown of the global economy, are top concerns especially for those who depend on income such as interest from savings, or dividend payments. Indeed, the prospect of companies continuing to pay good dividends next year does not look too promising. The Inland Revenue Board's chief executive officer Datuk Hasmah Abdullah said recently that a drop was expected in next year's tax collection, due to the lower profit projected by companies arising from the challenging economic environment.

The recent reduction in interest rates locally have seen 12-month fixed deposit rates falling to around 3.5 per cent a year. The global economic and market turmoil have understandably made people more cautious about where to keep their money. If you want protection of your capital akin to that provided by fixed deposits, but with better returns, you do not have many choices. That is why more and more people are turning to insurance products such as an endowment plan that offers capital protection and fixed income.

Maybank's Premier Capital Income (PCI) single-premium endowment plan

Launched in November, the PCI is an eight-year single premium endowment plan that gives you a fixed annual income better than the prevailing fixed deposit interest rate. Three plans are available, giving investors the choice of having a fixed annual income of four, five or 10 per cent over the period. You also get free insurance coverage against death and total permanent disability, based on how much money you put in.

Being a single premium plan, you pay only once upfront with RM20,000 being the minimum. There are no other charges applicable and because it is basically an insurance policy, it will have a cash surrender value which increases over time. What this means is that you can still make an early withdrawal, but you can only effectively get back your entire capital if you only do so after the fourth year. The plan gives capital protection only if held until maturity. See table below for details on the income payment and total guaranteed returns.

The PCI is being offered for a limited period until January 31, 2009. It is open to Malaysian citizens and permanent residents aged 20 to 65 years on their next birthday.

INVESTMENTS

When it comes to retirement planning, people often use the word savings and investments interchangeably. Both serve the same purpose, but have one key difference: when you put your money in a savings account, you basically want it safe from the risk of capital erosion. When making an investment, you are taking on risk by putting money in an asset that could either give you spectacular returns or wipe out your entire capital. Its about risk and reward - the higher the risk, the greater the potential reward and vice versa. That is why savings accounts don't pay high interest, but you have the assurance that your money is intact.

When it comes to investing, the lesson we can draw from the current market turbulence is that we need to always temper our expectations for high returns with our appetite for risk, that is how much risk we are actually willing to take and comfortable with. You need to ask yourself: how much losses can I afford if the investment does not work out, as opposed to how much can I profit from the investment? If you don't really have the stomach for sustaining losses, then lower your expectations and go for something safer, ideally an investment that provides for some form of capital protection.

CIMB Islamic's Max InvestSave PSSIA-i

Max InvestSave is a savings-cum-investment account that is unique in many aspects. Like any savings account, you can make deposits and withdrawals at any time. However, money kept in the account will be working harder as the bank will be investing it to generate potentially higher returns than fixed deposits. If you were to invest in the middle of December, you would already be seven per cent ahead. More on this later.

However, the profits will only be distributed at the end of your chosen tenure, which can range between 15 to 30 years. Account holders get 95 per cent of profits made from the investments, with the bank keeping the remaining five per cent.

What will the money be invested in? The short answer is anywhere in the world where money is to be made. How it works is that money saved in the account will buy units in the CIMB InvestSave index, which in turn tracks the CIMB Evergreen Index. The Evergreen index tracks the performance of various investments which include shares, bonds and properties around the world. Sounds very much like investing in some unit trusts, but with one major difference - money kept in the Max InvestSave account is capital protected if held until your chosen maturity period.

What else makes the Max InvestSave unique? Firstly, the low initial minimum investment of RM50. Secondly, you can continue to make additional deposits in multiples of RM50 whenever you want. Or withdraw the money anytime should the need arise without incurring any penalties. But you risk not getting the full value of your money if you withdraw early, as it would depend on the prevailing index value at that point in time. Thirdly, if you remain invested until maturity, you will be guaranteed of getting the highest historical value achieved by the InvestSave index for your chosen tenure.

Earlier we mentioned that if you had opened an account this month, you would already be up by seven per cent? That's because you would have paid RM0.9893 for a unit of the InvestSave, which guarantees you RM1.0604 a unit for a 20-year account. That is the highest value achieved by the index to date since the Max InvestSave account was launched in October.

So, for as long as you put in money into the account when the prevailing value per unit is lower than RM1.0604, you are guaranteed to be ahead provided that you stay to the end. That is unless the InvestSave index reaches a new high, which means more money for you at maturity. The index value is published weekly.

The Evergreen index has returned an average 25 per cent a year since it was launched in 2002, and appears to have weathered the current global market turmoil better than the more established international benchmarks like the Dow Jones Index, the DJ Eurostoxx and the Nikkei 225. Certainly, you should not base your investment entirely on past performance, but then again, for as long as you invest at values lower than the highest index value, you know you won't lose your money.

Because of the long tenure offered, you may want to consider the Max InvestSave as part of your retirement plan, or for an education fund for your kids. If you open an account now, CIMB Islamic will top up your initial investment by up to 30 per cent during the ongoing promotional period.

Maybank Gold Savings Passbook account

Investing in gold has been a little-known secret among savvy investors. Why gold? For the simple reason that over its long history, gold has been relatively better at preserving value compared to other types of investment assets. It is often said that an ounce of gold 50 years ago will buy you the same things today, although in Ringgit terms prices may have appreciated. That is why gold is seen as a good hedge against inflation.

However, trading in gold can be cumbersome. You have to take physical possession of the commodity, which means you would also need to find a safe and secure place to store it. That could be a reason why not many investors are keen on it. But that is all in the past.

Maybank recently introduced the Gold Savings Passbook account (GSPA) which does away with most of the hassles associated with investing in gold. You can purchase gold in 999.9 fineness at any Maybank branch at daily quoted gold prices for one gram in Malaysian Ringgit. All transactions will be recorded in the GSPA passbook, which is all you need to keep. You may also withdraw from the GSPA at the prevailing gold price at any time in the following ways:

PHYSICAL GOLD: Gold wafers can be withdrawn at selected branches. A conversion charge to cover the shipping and insurance will be levied for physical gold withdrawal.

GIFT GOLD CERTIFICATE: The certificate can be made payable to a third party and is valid for six months. The certificate is non-negotiable, non-transferable and non-assignable. Hence, only the registered holders can redeem the certificates.

CASH: The amount of gold holdings can be converted to Ringgit Malaysia at the prevailing market price, which will be credited into your Maybank deposit account.

Maybank says that using the GSPA is cheaper as gold prices quoted are pegged to international gold prices without additional charges. To open an account, you need to make an initial deposit equivalent to five grams of gold, which comes up to close to RM500 at the quoted gold price of RM99.78 per gram on 19 December. Subsequent transactions must be at a minimum of five grams in one gram multiples. Certainly, with the GSPA, gold trading is now available to everyone and considering the low entry requirements, anyone can start building a personal gold portfolio for the long term.

HOME LOANS

Property prices in Malaysia have been moderating though demand for landed residential homes remains relatively robust. Quality sells, and if you're looking to buy a house now, remember the three golden rules: location, location, location! When buying a home, always keep in mind the possibility of selling it later, either for profit or to upgrade to a larger and better property as your family expands.

With interest rates at its lowest in recent history, now may be a good time to consider buying the home of your dreams. But before you make the down-payment on your new home, it is a good idea to check with the banks first for a home loan package that best suits your needs. Once you find a suitable deal, apply for a pre-approved home loan from the bank. It is basically an agreement in principle by the bank to offer you a home loan, subject to confirmation of your personal details and credit status. Some banks also allow applications online. This way you will know exactly how much loan you would eligible for before committing yourself to the purchase.

Avoid making the mistake of comparing home financing packages solely based on the interest rates offered. Some financing packages offer low introductory rates, but charge you higher rates later.

When buying a home, there are associated expenses such as legal costs and stamping fees. These can easily cost as much as five per cent of the purchase price of the property. Drawing up the loan agreement and processing your application also incur costs.

There are zero entry cost home financing packages, where these costs are absorbed by the bank. But expect to pay a higher interest rate for the benefit. Some banks may also require you to take up a Mortgage Reducing Term Assurance (MRTA) policy to protect themselves should the unfortunate happen to you, and even lend you the money for it.

When it comes to interest rates, there are basically two things you need to consider for your home financing: fixed or variable. A fixed rate loan insulates you against variations in the bank's base lending rate, or BLR. You may want to consider this if you expect interest rates to trend upwards over the long term. Variable rate loans can advantageous if you expect interest rates to be generally lower over the term of the loan, as your monthly payments will be adjusted accordingly. But you'all also be paying more if interest rates go higher instead. With 25 years being a popular tenure for home loans, making a prediction on interest rates is largely academic. In the past 25 years, the BLR has spiked to just over 12 per cent and been as low as six per cent. That is a huge variance so if you are going for a variable rate loan, you need to assess if you could still afford the repayment if there is a sudden interest rate spike like what happened after the 1997 financial crisis.

That is why you may want to also check out if there is a lock in period for your home loan. Some home loans charge a penalty for early settlement, which could restrict your options to get a better refinancing package in the future should the need arise.

Home loans are usually pegged to BLR. And BLR trends usually track the interbank offer rate, which is what banks charge each other for loans. Historically, the BLR has been about three per cent higher than the Kuala Lumpur Inter-bank Offer Rate, or KLIBOR. As such, a loan pegged to KLIBOR could potentially be charging lower interest over its tenure, although most banks today are offering rates at around BLR minus 2 per cent.

Standard Chartered's MortgageKLIBOR

The MortgageKLIBOR is among the first in Malaysia to offer a home loan pegged to KLIBOR. The MortgageKLIBOR rates are determined by a three-month KLIBOR average and adjusted quarterly. The KLIBOR rate has been consistently lower than the average market financing rates, and is competitively set by the interbank market.

MortgageKLIBOR loans are available from as low as KLIBOR plus one per cent for a limited time. The bank's quarterly KLIBOR rate to the end of the year is 3.69 per cent. There are no set-up fees, maintenance fees or processing charges. Standard Chartered is offering a financing margin of up to 89 per cent and an additional five per cent for MRTA.

Maybank MaxiHome

Home loans typically span decades, and it is difficult for anyone to predict with certainty how things will turn out in the future. That is why some people prefer home financing that offers flexibility in terms of their repayment options. You could get a big promotion and afford to pay off your loan faster, or due to unexpected circumstances, can only make the interest payments for an extended period until your finances improve.

The MaxiHome offers all this flexibility, and more, with different packages to suit your needs.

Loan eligibility: Up to 40% of salary

Loan margin: Up to 95%

Loan tenure: Up to 40 years or 65 years of age

You also have the option of servicing the interest portion or to start paying the monthly instalments immediately instead of upon full disbursement of the loan.

For properties under construction valued at over RM100,000 you can also choose Zero payment during the construction period, with the monthly progressive interest capitalised into the loan amount.

You also have access to an overdraft facility from as low as BLR plus zero per cent.

Under the MaxiHome Plus package, you can also opt to make a bullet or lump sum payment at the end of the loan tenure, of up to 50 per cent of the principal amount. This means lower monthly repayments but the interest costs would be higher at the end of the day. You could finance the bullet payment from part of retirement savings in your Employee's Provident Fund account. The MaxiHome Plus package is only open to professionals and graduates with minimum income of RM5,000 a month.

The Maxi Flexibility package meanwhile offers the choice of a term loan, an overdraft or a combination of both. Under the combination option, the ratio of the term loan to overdraft is flexible and only subject to a minimum amount of RM10,000 for each type. This option is applicable for houses costing RM75,000 and over only.

Maybank is also offering loans to refinance your existing home loan at interest rates as low as BLR minus 1.70 per cent. Other facilities include remortgaging your house that has been fully paid for or is free from encumbrances to release cash from your largest fixed asset, without having to sell your house. If you have had a housing loan with Maybank for more than six months, you may also opt for additional financing at any time. The total loan amount can be up to 90 per cent of the value of your house.

Financing rates offered are as low as BLR minus 1.70 per cent for Zero Entry Cost loans and BLR minus 1.90 per cent for non-Zero Entry Cost loans.

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