Well, you canโt say it hasnโt been a long time coming.
Bank of China has announced that from 1 August 2020, interest rates on the BOC SmartSaver will be cut significantly, joining DBS, OCBC, UOB and pretty much every other bank in nerfing its flagship savings account.
This gives customers just under a month to adjust their allocation of funds, and for me, itโs so long BOC and thanks for miles and interest (and migraines).
BOC SmartSaver account changes
From 1 August 2020, the BOC SmartSaver will offer the following interest rates:
| Until 31 July 2020 | From 1 August 2020 | |
| Purchase eligible BOC wealth products | N/A | 1.5% |
| Spend on BOC credit cards each month | 1.6% (โฅ S$1,500) 0.8% (โฅS$500) |
0.5% (โฅ S$1,500) 0.3% (โฅS$500) |
| Credit salary | 1.2% (โฅ S$6,000) 0.8% (โฅ S$2,000) |
0.5% (โฅ S$6,000) 0.3% (โฅ S$2,000) |
| Pay at least 3 bills | 0.35% | 0.3% |
| Maximum Bonus Interest | 3.15% | 2.8% |
| Base Interest | 0.4% | 0.15% |
| Total interest | 3.55% | 2.95% |
| Cap on bonus interest | S$60,000 | S$80,000 |
On first glance, a reduction in the maximum bonus interest from 3.15% to 2.8% doesnโt seem that bad, especially considering how BOC is raising the cap on bonus interest from S$60,000 to S$80,000.
But look closer, and it falls apart.
New wealth bonus interest category
| Until 31 July 2020 | From 1 August 2020 | |
| Purchase eligible BOC wealth products | N/A | 1.5% |
| *Bonus interest awarded for first 12 months only | ||
BOC is now offering a โwealth bonusโ of 1.5%, which makes up ~55% of the total accountโs bonus interest. Since I have no interest in buying the bankโs investment products (Iโm a DIY investment kind of guy), this is virtually irrelevant to me.
Moreover, even if I did buy an investment product from BOC, the bonus interest would only be awarded for the first 12 months.
Credit card bonus interest cut
| Until 31 July 2020 | From 1 August 2020 | |
| Spend โฅ S$1,500 | 1.6% | 0.5% |
| S$500 โค Spend< S$1,500 | 0.8% | 0.3% |
BOC has taken the sword to bonus interest for credit card spending. Currently, you can earn up to 0.8-1.6% bonus interest by spending on your BOC cards. From 1 August, thatโs getting cut to 0.3-0.5%.
Assuming an average account balance of S$60,000, youโll lose S$660 of interest each year.
This also means that the last vestige of a use case for the BOC Elite Miles goes out the window.
Currently, if you spend S$500 on your card and keep S$60,000 in the BOC SmartSaver, youโll earn S$40 of interest and lose out on 100-1,500 miles. Even if you take the highest end of that spectrum, 1,500 miles is worth ~S$30, making S$40 interest a good trade.
| โ The actual number of miles you lose out on depends on what alternative cards you have, and whether there was a chance to earn 4 mpd. The BOC Elite Miles earns 1 mpd on local spending, and given a 1.2-4.0 mpd range of alternatives, S$500 represents 100-1,500 foregone miles. |
But from 1 August, that same scenario will earn you only S$15 of interest (S$20 if you max out the accountโs increased S$80,000 interest cap). Thatโs a much more marginal case for giving up miles, especially if itโs a 4 mpd opportunity.
Letโs also not forget the litany of issues that come with the BOC Elite Miles Card too- mysterious interest charges, dodgy annual fee โwaiversโ, a cap on the maximum number of miles you can transfer at a time..
All in all, itโs just not worth the drama anymore.
Salary crediting bonus interest cut
| Until 31 July 2020 | From 1 August 2020 | |
| Salary โฅ S$6,000 | 1.2% | 0.5% |
| S$2,000 โค Salary < S$6,000 | 0.8% | 0.3% |
Crediting your salary to BOC will be significantly less rewarding from 1 August 2020, with the bonus interest cut from 0.8-1.2% to 0.3-0.5%.
Assuming an average account balance of S$60,000, youโll lose S$420 of interest each year.
Bill payments bonus interest cut
| Until 31 July 2020 | From 1 August 2020 | |
| Pay at least 3 bills of min. S$30 each | 0.35% | 0.3% |
Bill payments are the easiest bonus category to earn, which may explain why so many banks have removed them. BOC hasnโt, to their credit, but theyโve reduced the bonus interest ever so slightly from 0.35% to 0.3%.
Youโll need to pay at least 3 bills of at least S$30 each, via GIRO or BOC Internet Banking/BOC Mobile Banking Bill Payment function.
Assuming an average account balance of S$60,000, youโll lose S$30 of interest each year.
Base interest has also been cut
| Until 31 July 2020 | From 1 August 2020 | |
| Below $5,000.00 | 0.25% | 0.1% |
| $5,000 to S$20,000 (exclusive) | 0.275% | 0.1% |
| S$20,000 to S$50,000 (exclusive) | 0.35% | 0.15% |
| S$50,000 to S$100,000 (exclusive) | 0.4% | 0.15% |
| S$100,000 and above | 0.475% | 0.2% |
BOC will also cut the base interest on all its savings accounts. Previously, you could earn 0.4% base interest on account balances from S$50,000 to S$100,000 (which is how you get the 3.55% interest figure on the SmartSaver- keep S$60,000 in the account and max out all your categories to get 3.15% + 0.4%). From 1 August, that will be cut to just 0.15%.
What now?
Iโve been a BOC customer since July 2018, and my relationship with them has beenโฆcomplex. The customer service is awful, the IT antiquated, the shenanigans plenty, and yet I stuck with them for the promise of high miles and interest.
That Faustian deal has unraveled in recent times. In June, the BOC Elite Miles was well and truly nerfed, leaving it a shell of its former self. And yet, the SmartSaver received a stay of execution thanks to the OCBC 360โs devaluation. Even with no credit card spending, Iโd still be earning 1.95% p.a with the SmartSaver, more than the 1.25% p.a on the 360.
With the new interest structure, however, the best I can manage with the BOC SmartSaver would be a paltry 0.95% p.a:
- 0.5% from salary crediting
- 0.3% from bill payment
- 0.15% base interest
So Iโm out. Itโs going to be a pain to spend the next few weeks redoing all my GIRO arrangements, but it is what it is.
BOCโs only saving grace was its high interest rates- take those away, and Iโd much rather place my money with a bank that doesnโt require me to go down just to link my credit card to ibanking.
Conclusion
Low interest rates arenโt a BOC-specific phenomenon, of course. As mentioned at the start, weโve seen many banks cut their rates over the past few months, making savings accounts less and less attractive.
Iโve attempted to forestall the impact by opening a Singlife Account and parking S$10,000 at 2.5% p.a, and also a Dash EasyEarn account for a further S$20,000 at 2% p.a. Beyond that, however, it looks like Iโll be forced into the market if I want to earn a decent return on my funds.
BOC customers- what are your next steps?
Not BOC, but affected by DBS Multiplier rate cut. Moving some of my money to Dash EasyEarn, then considering whether to open Elastiq to put some more money.
getting into the market is not necessarily a bad thing if you have savings beyond 6-12 months cash expenses ready.
the yield on some older corporate bond issues are good too because of current pricing.
multiplier is still decent if you have a house loan for 3 categories. for 2 categories at 30k its still decent as a place to park the dry powder.
iโm trying to be disciplined with my DCA, but canโt shake off all the talk that โthe marketโs going to crash any minute nowโ. it kind of puts me in two minds- continue DCA-ing, or wait for the prophesied crash?
no point timing the market. just go for company stocks that would be able to rebound post covid 19 and dca on those.
You missed out including the โBonus Interestโ of 0.4% which is awarded for fulfilling any one category. I think it is still the highest interest account out there:
Salary 0.5%
$500 Credit Card 0.3%
3x GIRO 0.3%
Bonus 0.4%
Prevailing 0.15%
=================
Total 1.65%
โbonusโ only applies to balances above the 80K
DCA requires faith and discipline. And choosing TSLA instead of wirecard or luckin.
IMO multiplier is current low-hanging fruit for Singapore consumer banking at 1.3-2.8% for 2 transactions and 2.0-3.8% for those with mortgages. Easy for 50K/100K savings without irritating-to-change GIRO or minimum card spends.
More than that and weโre in bond territory โ easier with SGD but more liquidity with USD. At current prices some investment grade bonds are 4-8% yield, more with leverage.
Aaron you honestly should be a wealth manager at DBS Treasures or higher
Letโs just not bring in the topic of putting money in investments.
Just by looking at this type of savings account, BOC still seems better than the similar multiplier savings account offered by OCBC, DBS, UOB, dont you think so?