This almost happen to me some years back when Foreign Currency Fix Deposit was very popular. Luckily for me, I had no money at that point of time else being a financial idiot then, I would have readily invested my money. Some were offering as much as 10% interest and Fix Deposits are supposedly risk free!
I would like to remind others not to jump into a product that promises you very attractive returns. Always be dubious on such products. If something is too good to be true, there will always be a catch somewhere.
Losing money on 1 month foreign currency fixed deposit
By: PanzerGrenadier
How many times have you heard of the term, “past results is not a guarantee of future performance?” when it comes to investing?
I learnt a painful lesson today when my foreign currency fixed deposit (FCFD) matured because I made a wrong calculation of the risk-return of investing in the FCFD. The lesson cost me $783.47 in realised losses.
What happened?
Foreign currency fixed deposits or FCFD for short are basically fixed deposits but in a currency that is other than Singapore dollar. I have had some measure of success with a deposit I placed sometime ago in NZD yielding 8.3% interest at an exchange rate of NZD/SGD 1.07. I had been monitoring NZD and thought I was able to get a sense of how volatile the currency could be against the Singapore dollar. Whilst this deposit is set to auto-renew both principal and interest perpetually, I decided that since I managed to get good returns from this instrument, why not try another tranche to get better returns as compared to 1% on Fairprice Plus Savings Account.
So I went ahead to place a deposit of NZD 12,890 x 1.1077 (S$14,278.25) at an interest rate of 8.1%. Now if I had placed that deposit for 1 year, I would be able to beat bank savings rates of 1% so long as NZD/SGD didn’t fall by more than 7.1% over 1 year. But I made a big error… Read more...