Investors have been pampered by different investment options in recent months, whether it's in government bonds, which have experienced rise in popularity, or in appealing fixed deposits.

After all, as inflation proceeds to exert pressure on consumers, there is a deep desire for investments that can offer positive, real returns. That is why it is not unexpected to see advertising material for investment products attempting to capitalise on this desire. The upsurge in aggressive marketing, on the other hand, should serve as a reminder to investors to perform due diligence on financial products to make sure they are receiving the expected returns.

They should not be swayed by flashy headline numbers, but rather focus on the effective returns on their investments and also the situations that can influence those returns. Recently, UOB hit the headlines when it raised the maximum bonus interest rate on its flagship One Account to 7.8 percent from 3.6 percent on December 1 – following similar measures by rivals DBS and OCBC in the preceding months.

Closer examination reveals, however, that the 7.8 percent figure is just a partial answer, similar to a close-up photo of Quasimodo's good side on an online dating site. In the scenario of UOB, savers will never take the maximum 7.8 percent interest rate promoted in marketing materials because the One Account employs interest rate brackets that charge different rates for each additional dollar above certain thresholds.

The first S$30,000 in the account earns 3.85 percent per year in interest, but the next S$30,000 earns 3.9 percent per year in interest. This equates to a 3.875 percent of effective interest rate on the first S$60,000 in the account. While the account's headline rate is 7.8 percent, the maximum possible effective annual interest rate is only 5.00 percent. This latter rate is only available if a balance of S$100,000 is sustained. Customers must also fulfil the monthly requirements of S$500 in eligible credit card spending and a minimum salary credit of S$1,600 via Giro or PayNow.

For the first S$100,000, DBS' flagship Multiplier Account offers a maximum interest rate of up to 4.1 percent per year. This is provided the customer transacts in three categories with a total monthly transaction volume of S$30,000 or more. When customers credit their salary, save, and spend with OCBC, they can earn up to 4.65 percent per year on the first S$100,000 in their account. For OCBC 360 customers who also invest and buy insurance through the bank, the annual interest rate is 7.65 percent.

Savers must also consider the various prerequisites that must be met in order to receive those enticing returns. Purchasing investment and insurance products from a bank and maintaining a large deposit amount in order to obtain a few more percentage points on your savings account may not be the best investment option for everyone. The old adage that one should always comprehend the product before investing in it is as true today as it was in the run-up to the 2008 global financial crisis when applied to structured products. When something appears to be too good to be true, it mostly is.

Credit: Business Times