SIBOR vs SOR vs Combo vs Fixed Deposit Rates for Singapore Loans


SIBOR vs SOR vs Combo vs FHR

Bank Loan Reference Rates

SIBOR, SOR, Combo and Fixed Deposit Rates are some of the most common reference rates that Singapore banks peg their floating rate loans to. The reference rates are updated daily and may be the average of 1 month rates, 3 month rates, 6 month rates or even 12 month rates. Choosing a loan with the right reference rate can help a borrower save on loan repayments every month. Let us breakdown the differences between the various reference rates and compare them against each other.

SOR or Swap Offer Rate

SOR is derived using this formula:

USD/SGD Forward Rate = USD/SGD Spot Rate +/- SWAP Points

To make it a bit less complicated, it is basically the interest rate that you will pay if you were to borrow in US dollars. Unlike most reference rates which depend mostly on the liquidity in the banking system, SOR is also heavily influenced by the exchange rate movement of USD/SGD. This is the main reason why SOR is the most volatile among the mentioned reference rates. SOR is usually lower than SIBOR in periods of decreasing interest rates due to Singapore Dollar's appreciation and higher than SIBOR in periods of increasing interest rates due to Singapore Dollar's deppreciation.

SIBOR or Singapore InterBank Offer Rate

SIBOR is the interest rate that Singapore banks borrow from each other and is widely regarded as the most transparent rate due to its widespread use among banks. It is affected by the liquidity in the Singapore banking system which is in turn affected by the liquidity in the global banking system. It usually rises and falls in tandem with US interest rates.

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Combo Rate or Combination of SIBOR Rate and SOR Rate

Combo is the average of SIBOR rate and SOR rate and provides borrowers the advantage of a reference rate that is in between SIBOR and SOR. Borrowers will borrow at a rate that is lower than SIBOR in periods of decreasing interest rates and borrow at a rate that is lower than SOR in periods of increasing interest rates. This reference rate caters mostly to customers who cannot decide between SIBOR and SOR.

Fixed Deposit Rates or FHR/FDR/FDPR/FDMR

FHR/FDR/FDPR/FDMR is the fixed deposit rate (could be 9-month or 15-month or 18-month or 36-month or 48-month depending on the bank) for the particular bank you are applying the loan from. It tends to be the least volatile as banks usually adjust their fixed deposit interest rate last even in a period of volatile interest rates. It is gaining in popularity due to the low fixed deposit rates in recent years leading to many different variations. However, fixed deposit rates can be changed anytime at a bank's discretion and is less transparent as compared to reference rates like SIBOR which is set daily by the Association of Banks in Singapore.

Which Reference Rate to Choose?

All the above mentioned reference rates usually move in the same direction as they are all mainly affected by the liquidity in the banking system and economic situation in Singapore. In periods of decreasing interest rates, borrowers will do well to borrow in SOR as it is the most volatile and often decreases faster than the other reference rates. However, interest rates and Singapore SIBOR rate seemed to have bottomed out in between 2011 and 2014 and has been rising slowly ever since then. In periods of rising interest rates, it will be more advisable to choose Fixed Deposit Rates as a reference rate as it rises the slowest. Borrowers concerned with Fixed Deposit Rates transparency can choose SIBOR which is less volatile than SOR or COMBO.


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