By Lorna Tan

Marketing associate Joel Tan earns between $2,000 and $3,000 a month and used to splurge his money on fine dining and taxi fares.

But last November, he opened a Monthly Savings Account (MSA) at OCBC Bank.

A sum of $300 is deducted automatically every month from his pay and goes into that account.

At the end of the fixed 24-month tenure, his account would have grown to $7,326, comprising the principal amount of $7,200 and a total interest of $126.

This is based on the annual interest of 1.68 per cent which was the rate offered by OCBC then.

Mr Tan, 24, opened the account because he realised he did not have money at the end of every month. He thought he had better start saving.

OCBC is not the only bank which offers such a monthly savings plan.

Three others do too, and we look at what the banks offer.

OCBC Bank's Monthly Savings Account

Launched in 2005, the OCBC Monthly Savings Account (MSA) allows customers to set aside monthly amounts from a minimum of $50 to a maximum of $5,000.

For savings below $800, the interest rate is 1.08 per cent a year. For savings from $800 to $5,000, the interest is higher - 1.48 per cent a year. The tenure of an OCBC MSA is fixed at 24 months and the rate remains unchanged during the two-year period. The interest will be paid at the end of the tenure.

Customers can open an unlimited number of OCBC MSAs - up to a maximum of $5,000 per month per account - and choose a non-OCBC Bank account as the debiting account.

Customers cannot change the monthly contribution amount once it is committed, but they can save more on an ad hoc basis.

For the additional amount that they save on top of their monthly commitment, they get interest of 0.8 per cent a year instead.

For example, if a customer chooses to commit $100 per month and decides to save $50 more in certain months, he will earn an interest of 1.08 per cent a year for the $100 and 0.8 per cent for the additional $50.

A customer can withdraw the full amount, including the additional savings, only at the end of the 24-month tenure.

If he does a partial withdrawal or contributes a lower monthly amount than what was committed at the start of the account, it automatically switches into a statement savings account earning an annual rate of 0.25 per cent.

For the completed months, interest at 0.8 per cent a year will be paid.

Should he opt to close his MSA before the 24-month tenure is up, he will get the full principal sum but will earn the lower-tier interest of 0.8 per cent a year.

Ms Chng Bee Leng, OCBC's vice-president of group wealth management, says: 'The OCBC MSA is a particularly useful tool for young adults to develop the discipline to save as they can start with sums as low as $50 per month.'

Citibank Step-Up Interest Account

This product differs from the other three banks' because it does not require a fixed monthly contribution.

Launched in early 2006, it is a savings account that encourages customers to grow their balances so that they can enjoy higher interest rates of up to 1.2 per cent per annum.

A customer earns a base interest rate of 0.3 per cent per annum initially. If his minimum account balance (lowest balance at any given day of the month) is higher in the next month, the interest rate earned on the account increases by 0.075 per cent per annum.

This means that if a customer's minimum account balance rises from month to month, he would attain the maximum interest rate of 1.2 per cent per annum after 12 months.

However, if there is a fall in the overall minimum account balance for the current month, there may be a revision in the interest rate earned. This will depend on the customer's minimum account balance and the interest rate earned at the point in time.

Additionally, upon attaining the 1.2 per cent per annum rate, the customer can continue to enjoy this rate if he maintains a minimum balance of $20,000 and above in his account.

This means that any withdrawal or fall in balances will not affect the maximum interest rate earned on the account, so long as the customer maintains a minimum account balance of $20,000.

State Bank of India's Recurring Deposit

Launched on Oct 10, the State Bank of India's (SBI) Recurring Deposit allows customers to save a minimum of $50 monthly. The bank does not impose any restrictions on the maximum monthly amount. Customers can opt for the tenure that suits them and this can range from six to 24 months. The interest rates, payable upon maturity of the fixed period, vary according to the amount and remain unchanged during the tenure.

For the tier of monthly savings ranging from $50 to $49,999, the annual interest rates are 1 per cent for six months; 1.3 per cent for 12 months and 18 months; and 1.35 per cent for 24 months.

For the next tier from $50,000 to $499,999, the rates are 1.25 per cent for six months; 1.4 per cent for 12 and 18 months; and 1.45 per cent for 24 months.

The savings amount cannot be changed after the account has been opened. If a customer fails to set aside the monthly contributions for some of the months, he can make up the difference during the specified tenure. A penalty of $10 per month is payable from the second month that he fails to make his monthly contribution.

Say a customer opens an SBI Recurring Deposit account in January and opts to save $1,000 a month for 12 months. He is unable to put aside $1,000 in July, August and September but makes up the difference and deposits $4,000 in October. He stills enjoy the specified interest rate of 1.3 per cent but must pay a $20 penalty.

But if he decides to close his account after six months of monthly contributions, the lower prevailing six-month interest rate of 1 per cent per annum applies.

Ms Shirley Thomas, SBI's head of distribution and sales and retail banking, says the product is a 'big hit' in India. 'Parents start saving when their kids are born. The regular saving feature inculcates a saving habit and gives liquidity for the rainy day.'

DBS Bank's MySavings Account

Launched in July last year, this product is an improvement over the discontinued POSB Save-As- You-Earn account. It offers higher interest rates and greater flexibility in terms of the monthly savings amounts and the tenure.

Customers can choose to save a minimum of $50 to a maximum of $3,000 monthly, but are limited to only two such accounts. The money must be deducted from either a POSB or a DBS account.

There is no fixed tenure so a customer can opt to save for as long as he wants. The interest is paid monthly.

For amounts between $50 and $290, the interest is 0.45 per cent per annum; for $300 to $790, it is 1 per cent; for $800 to $1,490, it is 1.2 per cent; and for $1,500 to $3,000, it is 1.5 per cent.

DBS Treasures customers, or those with at least $200,000 with the bank, enjoy higher rates of 1.3 per cent, 1.4 per cent, 1.5 per cent and 1.6 per cent respectively.

The monthly interest is pegged to the monthly savings amount. This means that if a customer who has been saving $800 a month decides to lower it to $300, his interest will go down from 1.2 per cent to 1 per cent per annum. The reverse also applies.

A penalty of a lower interest rate is imposed when there is a withdrawal, a failed deduction of the monthly savings amount, or when the account is closed.

If any of this happens, the monthly interest on the balance in that month will earn only the first-tier interest rate of 0.45 per cent per annum.

Assuming the account is not closed, the interest rate that the customer enjoys in the next month will depend on the amount he saves.

This article was first published in The Straits Times on October 19, 2008.