Have you come across something like “DBS FHR18 + 0.60% p.a.” when you are looking to get the most affordable home loan package? You might be thinking: what does FHR18 stand for? We’re here to answer that question in this article.
DBS FHR18 is a type of fixed deposit linked rate* and it refers to the Fixed Deposit Home Rate (FHR) that is benchmarked to Development Bank of Singapore Limited’s (DBS) 18-month fixed deposit rate. There are several DBS FHR: FHR, FHR8, FHR9, and FHR18. FHR is the average of 12-month and 24-month fixed deposit rates. The current rate for DBS FHR, FHR8, FHR9, and FHR18 stands at 0.6%, 0.95%, 1.025%, and 1.3% (as of 19th January 2021).
“+0.6% p.a.” refers to the spread which the bank imposes on borrowers. The spread is not dependent on the current economy, unlike FHR. It is fixed at the start of your loan tenure and it represents the profit of the bank.
*Different banks have a different term for their fixed deposit linked rate. For example, DBS FHR, OCBC FDMR, and UOB FDPR.
How has Fixed Deposit Linked Rate Changed During COVID-19?
FHR is linked to fixed deposit rates, which in turn is linked to the current economy outlook. Unlike Singapore Interbank Offered Rate (SIBOR) or Singapore Overnight Rate Average (SORA), fixed deposit rates are less volatile and will take a period of time for the changes in the economy to be reflected.
During the COVID-19 pandemic, the fixed deposit rates have been adjusted twice across all banks in Singapore. Once in April 2020 and the second time in May 2020. These changes have been reflected in the lowered FHR for existing and new loan clients who are on FHR8. Those who took up FHR18 will not be able to enjoy much savings as DBS did not make any changes to their 10-month fixed deposit rate.
Are Fixed Deposit Linked Rate Safer?
Compared to board rates, fixed deposit linked rates are on the safer end. Board interest rates are set internally and the public will not know how it is set, nor the benchmark for it. Fixed deposit linked rates are much more transparent than board rates as the public knows that it is linked to the current economic situation at the point of time.
Despite that said, fixed deposit linked rates are based on the type of fixed deposit rate which the banks want it to be pegged to. This means that they have a way to manage the interest rate charged, though it is more transparent. For example, DBS used to peg their FHR to the 24-month fixed deposit rate. Subsequently, they changed it to FHR18 then FHR8.
Let’s also not forget about the spread that the bank chargers its clients. This spread is set by the bank and they are allowed to change it whenever they find it suitable to do so.