Singapore has 3 main banks that are strategically placed throughout Singapore, providing holistic banking services in Singapore. Primarily, banks are known for their savings and deposit accounts but what about investing in them? What is the logic in investing capital in a company which mainly invests others’ capital. In this post, we will discuss the benefits of investing in bank shares as compared to depositing your capital in them.

1. Benefits of investing in Banks

Leveraging on risk to maximise “sitting capital”

Sitting Capital are defined as savings which you will not use in the near future. Usually, people will deposit those savings into fixed deposit accounts to maximise in their annual returns without exposing their capital to risk. However, there are always ways to get involved in manageable levels of risk and increase your returns from your sitting capital. Take a look at the table below for the dividend payouts from DBS, OCBC and UOB with respect to their current share prices.

Name of Bank	Share price	Average Annual Dividends	Distribution Yield
DBS	$25.00	$1.199	4.79%
OCBC	$10.86	$0.432	3.97%
UOB	$25.60	$0.998	3.89%

Investing vs Depositing in Bank

From the above table, you would realise that investing in bank shares will warrant higher returns than any fixed deposit bank accounts. These benefit is certainly coupled with an observable level of price volatility however, it also means that there is potential for your vested capital to appreciate when share prices rises. In short, risk pays.

2. How risky is investing in Bank Shares?

Historical performance of SG Banks from 2015 – 2019

If you take a look at the weekly charts of all three banks, you will notice that all bank shares have a Steady share price even after distributing dividends for 5 years.

DBS

OCBC

UOB

3. Deposit Vs. Invest

Reframing the idea of risk

When a person DEPOSIT their capital into a bank, he or she assumes to have zero risk because the amount deposited is guaranteed/backed by the banks assets. However, when you INVEST in the bank, you are basically buying a part of the company and therefore subjecting your capital to risk in terms of price fluctuations. Therefore there is difference in the exposure to risk but do note that the bank that you have entrusted with all your savings is also the bank which you “doubt” in terms of market performance. There is an inherent irony in the above statement but it is common to see such perspectives from Singaporeans.

Closing Thoughts

I hope that this post has shed some light between the difference between depositing cash and investing capital in the same bank in Singapore. This will help some who can afford to take a higher level of risk to Invest in banks instead.