I admit, this is a trick question. I could have asked would you like to earn 10% interest per annum for your savings too. Just note that when we get an annual return of 1%, of course the rates for our home loans will also be low as well. It may just be 2% or lower, probably. If the FD gives 10%, then the home loan is likely to be above this number. Banks get your money and they use that money to lend to others who needed money. To put it extremely simplified, the margins for banks are between what they give out and what they earn… Malaysia’s Overnight Policy Rate is currently at 2.5% yeah. (Earlier article here.)
Where is Malaysia at for Fixed Deposit Rates? The below is for a FD of RM10,000 and above. The rates are as at today (25th March 2020). For those who managed to save earlier, you would have secured much higher rates. As for now, well, do note that there’s news that there’s another cut in Overnight Policy rate (OPR) coming soon in May yeah. Earlier article here: Potentially another cut in May 2020.
With the COVID-19, many central banks around the world are doing their best to ensure businesses continue to have a lifeline. Recently, the U.S. Federal Reserve cut the rates down to just 0.25%. It was 1.25% before this. Article here. This was in response to the the damaging effects to the economy from COVID-19. In this part of the world, Reserve Bank of Australia (RBA) has also cut the country’s official interest rate to a record low 0.25% too (article here). The main reason is also to contain the fallout from COVID-19.
The Bank of England has also cut the interest rate from 0.25% to 0.1% and this is at the lowest point ever in the bank’s 325-year history. Again, the main reason is to face the coronavirus pandemic. Read the article here. Meanwhile in Europe, Sweden has a MINUS 0.25% interest rate while Denmark and Switzerland has MINUS 0.75 % interest rate. The following countries have ZERO interest rates. They are France, Germany, Italy, Spain, Netherlands, Greece, Ireland. Read the article here.
If zero rates, then what happens when my money is inside the bank? Well, you technically have less money after a year… This is because you did not earn any interest but the inflation has eaten up some of your money. Anyway, a more important thing to note would be that when we invest, the returns can still be far higher yeah. Plus risks too. Happy following.
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3 Responses
Hi, do you foresee HOC to make a return? Also when do you think is the best time to buy property? During this RMO or after? If after how long do you think is the best?
Hi Jeff, if I am the one deciding, I would hope the HOC can be focused on first-time home buyers only. The best time is not the best question. It should be the best property to buy because if today that house next to your parents are up for sale, whether MCO or no MCO, I think you should but it up so that you could stay close to them. If you are going to move to KL soon and your friend in KL has a property to sell at 30% below market because he is moving to KK, then you MUST consider how to view it quickly before others. Not drive there yeah, I meant via Zoom for example… Hope this answers. If you are buying for investment, then perhaps a more stable time may help you decide better and it should be based on the potential rental… so still not based on time. Cheers.
HOC return will depend on the narjet after COVID 19 us over. It may have some restrictions and not for everyone. I think the focus was on first time home buyers.