THE small customer has never had it so good.

OCBC Bank and Standard Chartered are slugging it out to woo about 100,000 baby accounts by offering deposit rates more than three times as high as DBS' rate, the Business Times reported yesterday.

In addition, OCBC is offering a princely rate of 1.5 per cent on a minimum fixed deposit of $6,000 - something that is not available even to private banking customers.

It is also guaranteeing the savings rates for the new baby bonus accounts until the year-end in spite of the universal belief that interest rates will slide further.

Both banks yesterday announced these lucrative offers whose cost they are willing to bear - because at stake is the six-year window of opportunity to sell other products such as home loans and credit cards to the parents.

Last month, the Government announced that OCBC and Stanchart had emerged as successful bidders to manage the baby bonus scheme, which is estimated to be worth about $400 million, from Aug 1.

They take over from DBS Bank, which offers a rate of 0.25 per cent on the Children Development Account (CDA).

Started by the Government in 2001 to encourage couples to have children, the baby bonus scheme has two components: an outright cash gift, and matching contributions to the CDA. For the third and fourth child, the total bonus from the government can go up to a maximum of $18,000.

In July 2007, there were 107,000 CDAs with $375 million in them. An average of 35,000 to 45,000 babies are born each year.

Co-funding from the Government into the CDA - which can only be used to pay for medical expenses, childcare and school fees - stops after six years. OCBC is offering to pay a 0.8 per cent interest rate for a new CDA or one per cent if parents opt to save at least $50 a month. The rates are guaranteed until the end of the year.

In addition, OCBC is offering a fixed deposit CDA even higher interest rates of 1.5 to 1.6 per cent for a 12-month tenure. The minimum amount is $6,000.

Mr Tan said there will be a cap on the amount which can be placed in a fixed deposit CDA, which the bank will announce in August.

Regardless of the amount, no bank in Singapore currently offers 1.5 per cent for a 12-month fixed deposit.

Not to be outdone, Stanchart also gave details of its CDA yesterday. The UK- based bank had brought forward its CDA media launch, scheduled for today, after it found out about OCBC's plans on Tuesday.

Stanchart said it is offering 0.78 per cent for a CDA. It also offers some extra flexibility where parents can earn a higher interest rate if they "pool" the family savings together for a combined $50,000 and above.

Stanchart head of consumer banking Ajay Kanwal said unless there is a material shift in movements of interest rates, the bank will not change them.

As for the higher interest rates Stanchart is offering in pooling accounts, he said it was so that parents don't lose out.

This article was first published in my paper on Apr 25, 2008.