Arbitrage: Making a Risk-Free S$16,600

I was researching deposit interest rates for my article on the Best Place to Park S$2 Million for 3 Months when a light bulb went off in my head. Can I take advantage of arbitrage opportunities by virtue of differentials in deposit and lending rates to make some moolah?


With Hubby and the kids home during the Circuit Breaker, I had taken my eyes off deposit and lending rates for a while to focus on answering their never-ending questions on food.


"What are we having for lunch today?"


"Can I bake muffins this afternoon?"


"What's for dinner?"


"Did you order ice-cream and chips?"


You get the picture.


I was so preoccupied with them at home that I had not realised that the 1-month Singapore Interbank Offered Rate ("1M-SIBOR") was progressively dropping towards 0.25% in May. Banks would extend credit at 1M-SIBOR plus a spread. The spread is what the bank makes from you when lending you money.


How much the spread is depends on the bank you're dealing with and the type of banking relationship you have with them (eg. personal, premier, private client, private, etc.). Generally, the bigger the fish you are, the lower the spread will be. For an ikan bilis like me, it's 0.6%. In simple terms, this means that my bank can lend me money at 0.85% (i.e. 1M-SIBOR at 0.25% + 0.6%).


HSBC Rain Vortex @ Jewel

I knew from my research that HSBC was offering depositors 1.65% in its Everyday Global Account. This meant that if I could borrow money from one bank at 0.85%, and deposit it with HSBC at 1.65%, I would essentially be making 0.8% on the deposit out of thin air.


0.8% on a S$2 million deposit over 3 months works out to be S$4,000.00. I use S$2 million as an example because that's the maximum deposit HSBC will allow for this 1.65% promo. In addition, HSBC is dangling a welcome reward of S$3,800.00 for starting a HSBC Jade relationship with them. I could potentially pocket S$7,800.00 after 3 months.


If I were to refer Hubby as a new client after 3 months and transfer that sum into an HSBC account opened under his name, he could potentially pocket another S$7,800.00. At the same time, I would receive a referral fee of S$1,000.00 from HSBC for introducing him. The potential total haul by the both of us over 6 months, provided the interest rates remain the same, would then become S$16,600.00.


This may seem like chump change to all the stock market gurus out there, but it's relatively risk-free compared to borrowing S$2 million to place in a see-saw stock market which I cannot make sense of. The only risks are HSBC suddenly collapsing or 1M-SIBOR shooting up, both of which I feel are remote in the next 3 months. SIBOR tracks the US Federal funds rate, and the Fed has already announced that rates should remain near zero through 2022.


HSBC's 1.65% promo for its Everyday Global Account is available to personal banking and premier banking customers too. Welcome rewards for new-to-bank customers apply as well.


In addition, an Everyday Global Debit Card will be issued for each Everyday Global Account opened. If you spend S$800.00 per month on that card, you'll be entitled to a bonus interest of up to 2% on the first S$100,000.00 in your account. To make the most of this, I'd want to charge expenses which are exempted from credit card points on the card to earn that extra 2%. Bonus 2% on S$100,000.00 works out to S$167 per month. That's like getting a 20% discount off an S$800.00 charge. Not bad for a transaction which would earn zero credit card points anyway!


There's also a bonus interest of 1.35% on the first S$100,000.00 for converting at least S$5,000.00 to foreign currencies. Unless you're planning on using S$5,000.00 worth of foreign currencies soon, it might be better to give this a miss.


Full details of the HSBC Everyday Global Account step-up promo can be found here. The 5% interest rate they're touting comes about by adding the bonus interests of 1.65%, 2.00% and 1.35% mentioned above.


Please note that the 1.65% promo is applicable for the 3-month block during which the account is opened. For instance, if you get the account opened and deposit funds on 15 June, the 1.65% will be payable for the months of June, July and August. However, since the funds only got deposited on 15 June, you'll only enjoy half month worth of interest in June. With COVID-19, it does take a few days for the bank to sort out the account opening, so remember to time everything properly to take full advantage of this promo. After 3 months, the interest falls to a dismal 0.1%.


Hope you find my arbitrage strategy useful! If you're looking at starting a private client or private banking relationship with the banks listed here, do drop me an e-mail at maximisermom@gmail.com, so I can be your referrer and split the referral fee 50-50 with you. Win-win right? Thank you!

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