The Federal Reserve just cut interest rate for the third time this year. Heartland Boy does not stand to gain from this as he took a HDB loan for his property mortgage. In addition, his thoughts immediately swung to the Citi MaxiGain Savings Account since its base interest rate is pegged directly to 1-Month SIBOR. In a double whammy, not only is 1M-SIBOR expected to decline in the short-term, Citibank also made a third revision to the Citi MaxiGain Savings Account that would drastically lower interest rate for the account holders. And it is unfortunate that Heartland Boy had to learn about it from a forum, hardwarezone, rather than directly from the bank. This blog article would outline the latest changes and how it affects Heartland Boy’s strategy to store his family’s emergency cash reserves.
Citi MaxiGain Savings Account Lowers Interest Rate Again
It was less than a year ago when Heartland Boy highlighted the revision in the terms and conditions (t&c) for Citi MaxiGain Savings Account. As a recap, that revision simply called for more deposits in order to qualify for base interest and (ii) a slight reduction of base interest multiplier. Heartland Boy considered that initial revision reasonable and stayed on with the product. To cope with the margin call, he even convinced Heartland Girl to entrust her savings into the Citi MaxiGain Savings Account that has been opened in his name. He considered it as the family jointly harvesting the fruits of the labour that he planted in early 2018.
However, the latest revision that will take effect on 2 Dec is all bad and nothing good. Here is a table to compare the changes that have occurred to Citi MaxiGain Savings Account.
Heartland Boy has highlighted the latest changes in red in the Diagram 1 case you have missed them. Regardless:
- Base Interest Multiplier is now 50% of 1-Month SIBOR instead of 70%
- The maximum bonus interest step counter is now 0.6% instead of 1.2%. Note that this is a hard cap and it also means that every difference in a counter level is equivalent to 0.05%.
Now, these changes are significant and drastic and there’s simply no two words about it. To calculate the difference in interest rate, assuming that there’s an account holder who is on step counter 12 with savings of $150,000 and that 1-M SIBOR is at 1.8%, he would be earning annual interest amount of $2,250 (effective interest rate of 1.5%) from 2 Dec 2019 onwards. Prior to the change, his interest amount would have been $3,690 (2.46%). That is a massive drop in interest rate of almost 100 basis points! A whopping annual difference of $1,440! Yikes.
Compare High-Yield Savings Accounts
Prior to the change, Citi MaxiGain Savings Account was easily the king that ruled the roost in the domain of high-yield savings accounts based on his review. Heartland Boy was receiving average interest rate of approx. 2.4% for his deposits in the Citi MaxiGain Savings Account. Now that its interest rate has dropped to 1.5% and possibly lower in the future owing to a Fed decrease in interest rate, Citi MaxiGain Savings Account plummeted straight to the bottom of the pile as shown in Diagram 2.
The latest change will cause Heartland Boy to re-think his strategy on where to park the family’s emergency cash reserves. If only Heartland Girl is actually as young as she looks, he would have opened the Standard Chartered Bank Jumpstart Savings Account to lock in 2% on $20,000 for life right away. Well, since this concerns the family’s emergency funds, he would have to evaluate carefully and weigh the pros and cons between interest rate, liquidity and ease. It’s a problem, albeit a happy one. It shouldn’t be too challenging as the year end could see some attractive promotions offered by the banks.
Suggestions from readers will be most welcomed. Of course, if he can’t find better alternatives, he may just stick around a little longer.
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