• fabianlau

Cautious steps when dealing from a bank

Updated: Apr 8, 2020

Many people grew up with the expectation of banks as "big, strong and friendly" institutions that will stand right by them to keep their savings secure and, in the case of fixed deposits, their principal guaranteed. As such, banks typically enjoy a high level of trust with their customers. Young and old instinctively view banks as safe havens for savings. This translates to a sense of security when they have dealings with a bank.

It is common for banks to tie up with insurance companies to offer insurance products at the bank or at roadshows. Thus, as a consumer when performing any transaction at the bank, do take responsibility and effort to find out first what agreement, terms and condition you are signing.

Here are things to consider before you commit to an insurance product at a bank.


#1 Endowment plans are not savings account


A savings account or plan you thought you were opening might actually be an insurance product. In many cases, it is partly to do with how they are pitched by the bank’s representative.

Endowment plans are sometimes wrongly pitched as a savings product where the customer just simply transfer his liquid savings to “another account” to earn higher interest.

Once you sign for an endowment, you are locked in for some years. Many consumers are unaware that if they choose to terminate the Endowment plan in the first or second year, they may lose all the savings. One way to differentiate an insurance product from a savings account is by asking the bank representative specifically if they are able to get back their savings if they were to terminate the account.

Another difference is the liquidity and the rate of returns. A savings account offers the liquidity and freedom to withdraw and deposit without incurring any penalty. Interest rates are also guaranteed. On the contrary an endowment plan requires a fixed sum to be committed periodically or as a lump sum at the start, and it typically does not allow withdrawals or drawdowns without incurring a penalty before maturity.


#2 Don’t fall for freebies


Gifts and incentives dangled by banks may range from appliances like handheld massagers, airfryers, and popular electronics, generous shopping vouchers to even entitlement to what may seem like "high" fixed deposit rates for a separate savings product.

A customer happily told me that she deposited some funds into a 5 years savings plan at the bank and received $500 shopping voucher. $500 is pretty enticing but after I found out that she had put in $50k for this plan, you know that 1% is really peanuts.

Freebies may seem attractive, however do bear in mind these are just instant gratifications and, most assuredly doesn’t form part of your financial planning.


#3 Do the comparison first


Do not give in to the pressure of buying insurance on the spot, be it at a bank or at road shows. Make it a habit to compare the options available under other banks or insurance companies. It is prudent to check out the prices, features and payouts of various plans.

After all, there is a wide range of financial tools available and it is prudent to make an informed decision rather than regret a rash one.

Never fall for sales pitch that says “last day offer, only today, exclusive offer, only for you.” Well, I’m sure good and sincere offers will not expire. Take your time and always compare the options first.

Abstract from "7 Tips before buying insurance from a bank" - The Sunday Times Singapore, 28 Jan 2018.

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