Thai Bank Annuities 10% Interest...Really?

[OMGImInPattaya]

So what's the deal on these Thai bank annuity/insurance products? Every year I get a call from my bank manager touting these products and their "good" deals. There must be some fat commissions on them as she sure pushes them.

 

This year, for example, my bank is offering "10% interest" on a 10 year annuity. Deposit a set amount each year for the first 5 years, say 1M baht, and get 100k interest a year (tax free) . In years 6-10 there is no payment but the interest payments continue.

 

My back of the mobile calculation has the annual yield as follows:

1 Year 10%
2 Year 5%
3 Year 3%
4 Year 2.5%
5-10 Year 2%

 

They also throw in for free their premium Visa card with its host of benefits and a life insurance benwfit. Has anyone done one of these before...any good?

[worgeordie]

You need to be sure,read the fine print.

regards worgeordie

[thequietman]

It's insurance, stay away. Many have been burned.

[scorecard]

1 hour ago, thequietman said:

It's insurance, stay away. Many have been burned.

 

And:

 

- Check what is the age limit to start up the insurance?  and

- Does it have a maximum age in terms of maturity?

- What benefits if offers (again check age factors)? 

- And is it a personal accident policy?

[fletchsmile]

2 hours ago, OMGImInPattaya said:

So what's the deal on these Thai bank annuity/insurance products? Every year I get a call from my bank manager touting these products and their "good" deals. There must be some fat commissions on them as she sure pushes them.

 

This year, for example, my bank is offering "10% interest" on a 10 year annuity. Deposit a set amount each year for the first 5 years, say 1M baht, and get 100k interest a year (tax free) . In years 6-10 there is no payment but the interest payments continue.

 

My back of the mobile calculation has the annual yield as follows:

1 Year 10%
2 Year 5%
3 Year 3%
4 Year 2.5%
5-10 Year 2%

 

They also throw in for free their premium Visa card with its host of benefits and a life insurance benwfit. Has anyone done one of these before...any good?

I suggest:

 

1) you get a full illustration of the exact cash flows, so everyone is clear exactly how much is paid in and how much you receive it year

 

2) you understand exactly what the insurance element is. What does it actually cover? When/ under what circumstances does it pay out?

 

Based on what you've written:

 

- while the first year sounds very nice at 10%, and the second year sounds OK at 5%, third year is passable at 3%, 2.5% in 4 years time doesn't sound great, and do you really think 2% is a good deal for the final 6 years?

 

Notice how they pay the largest % on the smallest amount. i.e 10% on 1Mn at the start, but it sounds like 2% on 5 Mn for the final few years.

 

A simple weighted average of what your getting is around 2.X%, which is of course much closer to the 2% when you've put your total 5 Mn in and have to leave it there for the last 6 years - assuming you pay in advance

 

Average 2.X% for 10 years doesn't sound like a good deal to me.

 

If anything Thai interest rates are more likely to start rising in the next few years. Slight possibility of further very small decreases, but at some point the Thai Monetary Policy Committee will start raising rates during the next 10 years.

 

What's the credit risk on the insurer? What if they go bankrupt? Bank deposits are guaranteed by the deposit protection act.

 

Can you really afford to tie your money up for that period of time/ 10 years and does it really make sense to do so? What if an emergency crops up and you need the money back?

 

2.X% for 10 years money tied up and the inflexibility isn't something appealing to me - bearing in mind we're also towards the low point of the interest rate cycle.

 

Might possibly appeal to some people though.

 

BTW If you are working in Thailand and paying tax, then you may be able to get tax relief on some of it which would make it more worthwhile. You wouldn't get relief on anywhere near THB 1Mn though. Think more of top rate tax payer paying 35% tax and getting relief on 100k.

 

That makes much more economic sense. It needs to be a qualifying scheme for a minimum of 10 years. Again check that it is such a scheme. For non-taxpayers/ without tax relief it isn't really that attractive

 

Cheers

Fletch :) 

 

 

[1FinickyOne]

Surely good commissions as the bank sends a team out to my house, 40 km away, though surely they had other calls to make... been approached many times, and sometimes the sales people have no idea... one promised me 30%.... per year... since she was a friend I had to sit down with her manager - when they saw that I could do the calculations, they told me it was 2.3% per year... 

[OMGImInPattaya]

1 hour ago, fletchsmile said:

I suggest:

 

1) you get a full illustration of the exact cash flows, so everyone is clear exactly how much is paid in and how much you receive it year

 

2) you understand exactly what the insurance element is. What does it actually cover? When/ under what circumstances does it pay out?

 

Based on what you've written:

 

- while the first year sounds very nice at 10%, and the second year sounds OK at 5%, third year is passable at 3%, 2.5% in 4 years time doesn't sound great, and do you really think 2% is a good deal for the final 6 years?

 

Notice how they pay the largest % on the smallest amount. i.e 10% on 1Mn at the start, but it sounds like 2% on 5 Mn for the final few years.

 

A simple weighted average of what your getting is around 2.X%, which is of course much closer to the 2% when you've put your total 5 Mn in and have to leave it there for the last 6 years - assuming you pay in advance

 

Average 2.X% for 10 years doesn't sound like a good deal to me.

 

If anything Thai interest rates are more likely to start rising in the next few years. Slight possibility of further very small decreases, but at some point the Thai Monetary Policy Committee will start raising rates during the next 10 years.

 

What's the credit risk on the insurer? What if they go bankrupt? Bank deposits are guaranteed by the deposit protection act.

 

Can you really afford to tie your money up for that period of time/ 10 years and does it really make sense to do so? What if an emergency crops up and you need the money back?

 

2.X% for 10 years money tied up and the inflexibility isn't something appealing to me - bearing in mind we're also towards the low point of the interest rate cycle.

 

Might possibly appeal to some people though.

 

BTW If you are working in Thailand and paying tax, then you may be able to get tax relief on some of it which would make it more worthwhile. You wouldn't get relief on anywhere near THB 1Mn though. Think more of top rate tax payer paying 35% tax and getting relief on 100k.

 

That makes much more economic sense. It needs to be a qualifying scheme for a minimum of 10 years. Again check that it is such a scheme. For non-taxpayers/ without tax relief it isn't really that attractive

 

Cheers

Fletch :) 

 

 

Thanks for the good suggestions...it's hard to get good answers from the manager due to the language barrier (though she does speak decent English) and the fact the documentation is in Thai. It's kinda comical because they like to tout the VIP aspects of the program (special parking places at bank branches, que jumping, reserved parking at shopping malls, airport lounge privileges, fast track immigration, etc...stuff that would appeal to a Thai's ego. She was kinda deflated when I told her I always fly business or first so all the airport perks were useless to me.

 

When I ran my rough calculations above by her, she said the IRR  was 2.60% per annum for the 10 year period. What galls me is that the spreadsheet they provide lists "10%" as the interest rate for each year 1-9 when in fact that's only true the first year. They even have the gall to list a "450%" rate for year 10 (which of course is just the interest payment that year plus the return of the principle). I mean, even I'm not that dumb...but some people must be.

 

The one thing I have learned is that if someone, especially a bankster, is trying hard to sell someone on a financial product, it's very likely a good deal form the bank and a lousy investment for the client. I think I'll pass.

Edited September 27, 2017 by OMGImInPattaya

[The Deerhunter]

4 hours ago, OMGImInPattaya said:

So what's the deal on these Thai bank annuity/insurance products? Every year I get a call from my bank manager touting these products and their "good" deals. There must be some fat commissions on them as she sure pushes them.

 

This year, for example, my bank is offering "10% interest" on a 10 year annuity. Deposit a set amount each year for the first 5 years, say 1M baht, and get 100k interest a year (tax free) . In years 6-10 there is no payment but the interest payments continue.

 

My back of the mobile calculation has the annual yield as follows:

1 Year 10%
2 Year 5%
3 Year 3%
4 Year 2.5%
5-10 Year 2%

 

They also throw in for free their premium Visa card with its host of benefits and a life insurance benwfit. Has anyone done one of these before...any good?

Copying the insurance company deals on planned deposits which came about because the banks were so greedy.  Check the same deal with Thai life. 

[fxe1200]

Here is a reliable tool to calculate annuity.

 

http://vindeep.com/Calculators/EMICompare.aspx

 

Thai banks can be sometimes confusing, as well as the so called interest and repayment lists of car - and motorcycle dealers. They are all miscalculated. Do your own.

[Foozool]

I don't trust them. 

[StevieAus]

I have had similar experiences with my bank who had the audacity to turn up at my home unannounced,

They hardly spoke any English requiring my wife to translate and of course couldn't answer any questions to my satisfaction

I am no financial expert but it wasn't hard to see that it was all commission driven rubbish

As soon as I started showing them by means of my calculator that their brochures were wrong they left,

 

[StevieAus]

22 minutes ago, Foozool said:

I don't trust them. 

I will vote for that

[SOUTHERNSTAR]

Ask them what happens if you should stop payments before year 5. Also ask what happens if you should die before the fifth year and if you die between year 6 to 10. I saw an article that the government is reviewing their tax relief on interest payments which could have an effect on this scheme. Lastly check where they will be investing your money. Last time someone approached me about a similar scheme about 10% would have been invested in Greek government bonds. 

[1FinickyOne]

ps - whenever it has an aspect of being a game - you lose. 

 

One "policy" they gave us 50% interest the first year. Of course, they were just giving us 1/2 our money back... 

 

A good question to ask is how much you lose if you cancel during the first year. If nothing else, that will give you an idea of their commissions. The couple of times I asked, it was very hefty. 

[bazza73]

If it sounds too good to be true, it usually is.

[ujayujay]

3 hours ago, fxe1200 said:

Here is a reliable tool to calculate annuity.

 

http://vindeep.com/Calculators/EMICompare.aspx

 

Thai banks can be sometimes confusing, as well as the so called interest and repayment lists of car - and motorcycle dealers. They are all miscalculated. Do your own.

The Car and Motorcycles are not miscalculated. Its simply not the same calculation as in most western Countries. Expats dont understand the difference between leasing and downpayment. 

[swissie]

In short: One of my stepdaughters has been (and still is) selling this product for quite some time for a major bank.

Commission is good, she owns 3 houses in BKK, practically debt free.

I asked her, if she owns the product herself. She gave me a dazzeling smile and said "of course not"!

Food for thought fellows.
Cheers.

[mstevens]

I thought the way these policies worked was that you get tax credits that could be offset against earnings in Thailand and filed in your Thailand tax return (assuming you work in Thailand and file a local ta return).  The amount of tax you save is expressed by the banks as an effective return on your money hence rates of return that sound higher than one would typically expect.  That is my understanding of how these bank insurance policies work.

[ToddinChonburi]

There is always a Fee  !!!

[inThailand]

10% the first year. Its called a teaser and works on folks who can't add two numbers together without a calculator.

 

The blended rate is 3.25%. Which ain't bad. I have been offered risky fund accounts around that rate. Are sure it's an annuity?

 

I would hazard a guess that 50% of those who sign up withdraw their money early with very high penalties.

[Pinot]

Annuities are almost always a bad choice. Plenty of good information about annuities online. 

 

I say almost because there could be places where they might work, but smart/low risk investing will be a much safer route. If you don't know how to invest, then look for a financial advisor. Get plans from a few different ones. Get recommendation from friends. 

 

By the way, Gold is not an investment. It's pure speculation. 

 

I recommend low cost Index ETFs. Many International investment sites available. Want some recommendations? SPHD, VEU, FVD, DGRW will all provide dividend income and growth at a low cost. 

[OMGImInPattaya]

3 hours ago, inThailand said:

10% the first year. Its called a teaser and works on folks who can't add two numbers together without a calculator.

 

The blended rate is 3.25%. Which ain't bad. I have been offered risky fund accounts around that rate. Are sure it's an annuity?

 

I would hazard a guess that 50% of those who sign up withdraw their money early with very high penalties.

As I mentioned, after some prodding, the bank manager said the internal return rate is 2.6% per year. I sort of look at it as a "front loaded" 10 year fixed term deposit, with the interest payments larger during the first couple years. 

[speedtripler]

18 hours ago, Pinot said:

Annuities are almost always a bad choice. Plenty of good information about annuities online. 

 

I say almost because there could be places where they might work, but smart/low risk investing will be a much safer route. If you don't know how to invest, then look for a financial advisor. Get plans from a few different ones. Get recommendation from friends. 

 

By the way, Gold is not an investment. It's pure speculation. 

 

I recommend low cost Index ETFs. Many International investment sites available. Want some recommendations? SPHD, VEU, FVD, DGRW will all provide dividend income and growth at a low cost. 

Gold is old, CryptoCurrency like bitcoin and ethereum is where I've been making the best gains..... Not stocks, gold or property combined can match it

 

If you can afford it a small % of crypto in a diversified basket can really boost your earnings 

[inThailand]

18 hours ago, OMGImInPattaya said:

As I mentioned, after some prodding, the bank manager said the internal return rate is 2.6% per year. I sort of look at it as a "front loaded" 10 year fixed term deposit, with the interest payments larger during the first couple years. 

Yes! After 15% tax on the 3.25% your net annual rate is 2.6%. But I don't believe this is a risk free product.

[OMGImInPattaya]

2 hours ago, inThailand said:

Yes! After 15% tax on the 3.25% your net annual rate is 2.6%. But I don't believe this is a risk free product.

Good point. I'm curious in what sense do you think it's not risk free. Is it a bank deposit or is one actually buying into a non-bank investment fund of some type or life insurance product? Is the risk from bank/insurance company failure or market risk from the investment fund returns?

[cheeryble]

On September 27, 2017 at 5:30 PM, fletchsmile said:

I suggest:

 

1) you get a full illustration of the exact cash flows, so everyone is clear exactly how much is paid in and how much you receive it year

 

2) you understand exactly what the insurance element is. What does it actually cover? When/ under what circumstances does it pay out?

 

Based on what you've written:

 

- while the first year sounds very nice at 10%, and the second year sounds OK at 5%, third year is passable at 3%, 2.5% in 4 years time doesn't sound great, and do you really think 2% is a good deal for the final 6 years?

 

Notice how they pay the largest % on the smallest amount. i.e 10% on 1Mn at the start, but it sounds like 2% on 5 Mn for the final few years.

 

A simple weighted average of what your getting is around 2.X%, which is of course much closer to the 2% when you've put your total 5 Mn in and have to leave it there for the last 6 years - assuming you pay in advance

 

Average 2.X% for 10 years doesn't sound like a good deal to me.

 

If anything Thai interest rates are more likely to start rising in the next few years. Slight possibility of further very small decreases, but at some point the Thai Monetary Policy Committee will start raising rates during the next 10 years.

 

What's the credit risk on the insurer? What if they go bankrupt? Bank deposits are guaranteed by the deposit protection act.

 

Can you really afford to tie your money up for that period of time/ 10 years and does it really make sense to do so? What if an emergency crops up and you need the money back?

 

2.X% for 10 years money tied up and the inflexibility isn't something appealing to me - bearing in mind we're also towards the low point of the interest rate cycle.

 

Might possibly appeal to some people though.

 

BTW If you are working in Thailand and paying tax, then you may be able to get tax relief on some of it which would make it more worthwhile. You wouldn't get relief on anywhere near THB 1Mn though. Think more of top rate tax payer paying 35% tax and getting relief on 100k.

 

That makes much more economic sense. It needs to be a qualifying scheme for a minimum of 10 years. Again check that it is such a scheme. For non-taxpayers/ without tax relief it isn't really that attractive

 

Cheers

Fletch :) 

 

 

I had this pushed to me at the bank last week.

I asked the bank man.......who is a great friend of the wife ......what the interest rate was annualised over the period.

Fletch is right. It was 2 point something.

So if rates go above that in the next one years......highly likely......youre losing money.

[fletchsmile]

1 hour ago, cheeryble said:

I had this pushed to me at the bank last week.

I asked the bank man.......who is a great friend of the wife ......what the interest rate was annualised over the period.

Fletch is right. It was 2 point something.

So if rates go above that in the next one years......highly likely......youre losing money.

Nice to see you around mate. Not seen you on forums for a while.

 

Could you also do me a favour and tell my wife I was right about something for once :)

[inThailand]

If the bank can not provide details of what this investment is, your risk exposure and terminating terms then it's not worth considering, especially for tieing up money for 10 years.

[lkn]

On 9/29/2017 at 12:59 AM, inThailand said:

Yes! After 15% tax on the 3.25% your net annual rate is 2.6%. But I don't believe this is a risk free product.

 

Assuming 1 million is paid initially, and then again after 1, 2, 3, 4, and 5 years (so total amount invested is 6 million over 6 years), I get the annualized rate to ~2.56% before tax (assuming interests are yearly payments which are not re-invested).

 

The total gain is 1,150,000 baht over 10 years.

 

If we instead invest 1 million yearly (for 6 years) into a fund giving us an average return of 5% p.a. and withdraw 100,000 per year then the total gain will be 2.4 million over the 10 years.

 

Note that the yearly interest payments in my latter example roughly match those of the bank, i.e. the first year we do withdraw 10% of our principal, yet we still end up making more than twice as much in total gains.

 

Edit: ~2.56% rounded to one decimal would be 2.6%, as claimed by the bank.

 

Edited October 1, 2017 by lkn

[speedtripler]

On 01/10/2017 at 8:31 PM, lkn said:

 

Assuming 1 million is paid initially, and then again after 1, 2, 3, 4, and 5 years (so total amount invested is 6 million over 6 years), I get the annualized rate to ~2.56% before tax (assuming interests are yearly payments which are not re-invested).

 

The total gain is 1,150,000 baht over 10 years.

 

If we instead invest 1 million yearly (for 6 years) into a fund giving us an average return of 5% p.a. and withdraw 100,000 per year then the total gain will be 2.4 million over the 10 years.

 

Note that the yearly interest payments in my latter example roughly match those of the bank, i.e. the first year we do withdraw 10% of our principal, yet we still end up making more than twice as much in total gains.

 

Edit: ~2.56% rounded to one decimal would be 2.6%, as claimed by the bank.

 

 

Rounded to a Thai bank probably means rounded down on your side lol