AIA Wealth Accumulator (A$)

AIA launched their new A$ Wealth Accumulator product.

It is a 4.5-year, non-participating single premium endowment plan.

The guaranteed yields in A$ are:

$10,000 – $29,000 : 4.50% p.a.
$30,000 – $74,000 : 4.60% p.a.
$75,000 and above : 4.70% p.a.

The maturity amount will also be paid in A$.

It will not be suitable for those who are averse to foreign currency exchange rate risk. However, if you already plan to hold on to A$ long term or intend to use A$ for future needs (eg education funding or retirement), then holding A$ would be ok.

This product is available for a limited period only.

Comparing with current foreign currency fixed deposit rates at banks for A$ is about 4% (depending on amount) for a 12-month duration.
http://www.ocbc.com/personal-banking/tools%20and%20info/Toi_Rates_FoxFC_Listing.shtm

As the RBA looks set to increase interest rates as the recovery is underway, locking in the interest at 4% for the next 4.5 years is not a good move. In addition, the forex rate of A$ has seen a strong recovery since the low in 2009 and looks like on down trend as the US$ appreciates against all other currencies.

Thus, in my opinion, it is not the right time to go into this investment. Moreover, it would be better to place with the bank in a foreign currency fixed deposit as the capital is still guaranteed for early withdrawal compared to this endowment. And the potential for the interest rates to move up within the next 4.5 years is very high, allowing enjoyment of a higher return for year on year maturity of the fixed deposit. Taking into consideration the effects of compounding, the returns of this endowment is not significantly more.