The Overlooked Instrument That Could Beat Your Cash Savings Strategy

Daniel Lee
Sep 23
7 min read

If you’re sitting on sizeable cash savings without any plans to utilise it for short-term big-ticket spending (such as property financing), nor do you intend to invest it actively, chances are you’ve parked your money in one of the following instruments:

Saving accounts (i.e. DBS Multiplier/UOB One)
Fixed deposits
Government treasuries
Cash management accounts

If this sounds like you, you’ve likely run into the common problem of having to constantly hunt for the most “competitive” platform or product to roll your savings into whenever your deposit matures.

Most of these products lock you in for 6 to 12 months, and when the term ends, you’re forced to make yet another decision on where to park your funds.

This isn’t just time-consuming, but also leaves you highly vulnerable to interest rate fluctuations. A rate that looks attractive today could easily drop tomorrow, and unless you’re prepared to switch platforms or compromise on returns, your cash is at the mercy of the market cycle.

But what if there was an alternative that:

Locks in your payout certainty for life,
Removes the hassle of constantly chasing rates, and
Provides both income and capital preservation (even growth)

In this article, I’ll introduce you to a financial instrument called Annuities and compare it against the other common cash-equivalent instruments to see if it makes sense for you to consider it as a home for your savings.

The article is broken down into the following sections:

What is an Annuity
Annuities vs. Other Cash Instruments
1. Qualitative Analysis
2. Quantitative Analysis
Personal Take

1: What is an Annuity

Before diving into the analysis, it’s important to understand what an annuity actually is and how it works.

At its core, an annuity is a contract between you and an insurance company. You commit a lump sum of money (or regular contributions), and in return, the insurer provides you a stream of income — either for a fixed duration or for the rest of your life.

Depending on the policy settings, annuities can vary widely. Some of the common variations include:

Single Pay vs. Regular Pay: A one-time premium versus paying over a period of years.
Payout Duration: Limited (e.g., 20 years) or lifetime.
Capital Guaranteed vs. Non-Guaranteed: Whether your principal is preserved (e.g., via surrender value or death benefit) or gradually drawn down.

For this article, we’ll be focusing on one specific type of annuities:

👉 Single-pay Annuities that provide lifetime payouts and guarantee capital upon surrender (after the accumulation period).

This means you contribute a one-time lump sum and in return, you enjoy regular, predictable income for life, with the added assurance that your capital is not lost — it is either retrievable if you surrender the policy or passed on as part of your estate.

****Moving forward, whenever I use the term “annuities”, I am referring to this specific type of annuity that I am using for the analysis. Please take note that it is not a representation of the entire annuities category. For obvious reasons, I will not disclose the provider's name or the product's name. You can reach out to me if you’re interested in finding out more****

With that out of the way, let us take a look at how such annuities compare with the other instruments that we tend to park our cash in today.

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2: Annuities vs. Other Cash Equivalents

To understand where annuities stand among other popular cash-equivalent instruments, let’s evaluate them side by side across several key factors, starting with the qualitative factors.

2.1 Qualitative Analysis

*Based on the Annuities that I’ve used for the analysis, the capital is guaranteed post “lock-in” period (Accumulation period). Not all annuities offer capital preservation and growth features, and that's where you need to exercise due diligence.

Key Takeaway

Liquidity vs. Certainty In Long Term Payout Behaviour: In exchange for a higher lock-in period, annuities provide a higher stability in future payout as the contract has already pre-defined the guaranteed and non-guaranteed payout behaviour throughout the policy duration (Whole of life).

This mitigates the impact of interest rate risk, which is not found in other instruments given that they either do not have a pre-defined agreement on their future payout behaviour (i.e. Savings accounts and Cash Managed Accounts) or that their pre-defined agreement is very short (6-24months).

Pay-Out Guarantee: For savings accounts, fixed deposits and government treasuries, the interest payout is guaranteed. Annuities, however, provide both guaranteed and non-guaranteed payout and as such, only a portion of their total return is guaranteed as per their contract. Lastly, a cash-managed account provides zero form of guarantee and is heavily susceptible to the prevailing interest rate environment.

Solvency Protection: Savings accounts and fixed deposits are protected under the Singapore Deposit Insurance Corporation of up to S$100k, while annuities are covered under the Policy Owners’ Protection Scheme (also capped at S$100k per insurer per life assured).

Government treasuries carry virtually no solvency risk, making them the safest capital guarantee option, while a cash-managed account provides no capital or solvency protections at all.

Capital Preservation and Growth: Savings accounts, fixed deposits, and government treasuries guarantee safety in the principal but not growth - once the interest or coupon is paid, the original capital would be returned to you.

Cash management accounts offer growth, but they come with investment-linked risks and no capital guarantee. While they may deliver better yields than savings accounts, your principal isn’t fully shielded from fluctuating with the prevailing interest rate environment.

Annuities, on the other hand, combine the best of both worlds. Depending on the provider, they may protect your principal and also provide growth over time on top of the lifetime payout. That said, the features of an annuity may differ greatly between insurance companies and products.

Round-Up Summary

Each cash-equivalent instrument serves a purpose, but its strengths vary across safety, flexibility, and long-term value.

Savings accounts, fixed deposits, and government treasuries excel in short-term liquidity and capital safety, but they lack growth on the principal and certainty beyond their fixed terms.

Cash management accounts add growth potential but introduce market risks with no capital protection.

In contrast, annuities uniquely balance capital protection with principal growth and long-term payout certainty, making them especially attractive for individuals seeking stable, lifelong income, which suits those who prefer to roll and rotate their government treasuries, fixed deposits and cash management accounts for their cash balances instead of spending it or investing it.

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2.2: Quantitative Analysis

With the qualitative comparisons covered, let’s now examine how the returns of a single pay annuity plan stack up, based on offerings from two of the most competitive providers in the market today.

To avoid confusion, it’s important to note that the total return of an annuity comes from two components: the regular payouts you receive and the potential growth in principal value. To capture both elements fairly, we’ll measure returns using the Internal Rate of Return (IRR). IRR is expressed as an annualised percentage and reflects the effective interest rate at which the total value of all future cash flows equals the initial investment.

So, what does this mean in practice? Here’s a look at the range of IRRs you can expect from a $100,000 single-pay annuity plan, depending on your holding horizon — whether that’s as short as 5 years or as long as 60 years.

Here’s how the IRR of a present annuity plan (5 to 25 years holding period) would compare with the historical Singapore 1-year treasury yield behaviour from 2000 to 2025.

Green line = Guaranteed return
White line = Lower bound return based on a 3% Projection
Red line = Upper bound return based on 4.25% Projection

Take note that the 3% and 4.25% return projection is based on the insurer’s participating fund’s performance and not the return you receive from the plan itself.

For example, if the insurer performs at 3% yearly, the IRR you will receive on a 10-year annuity plan is 1.79%. If the insurer performs at 4.25% yearly, the IRR you will receive on a 10-year annuity plan is 2.69%.

Realistically speaking, the actual IRR should fluctuate between 3% and 4.25% projection and tend to steer closer to 4.25% in the long term with the practice of smoothing bonuses and reversion to the mean. If you wish to be conservative, refer to the guaranteed and 3% projection.

Please speak to your financial advisor for greater clarity, as there are limitations as to how much I can explain in an article (╯°□°)╯︵ ┻━┻.

Key Takeaway:

5 Year holding period: Annuities may underperform all other cash solutions during periods of rate spikes when viewed from the guaranteed and the lower bound return rate. However, if the annuity performs at the upper-bound return rate, you are likely to be better off for the majority of the periods.

10 Year and above holding period: With the exceptions of periods of high inflation, where interest rates are artificially propped up to combat inflation, annuities tend to outperform the return of all other cash instruments across most periods, even at the lower bound return rate.

3: Personal Take

In the post-2008 financial crisis era, we’ve seen how governments around the world have chosen to keep interest rates depressed for extended periods to prop up economic growth.

Whenever challenges arise, fiscal discipline often takes a backseat, with “printing” money becoming the easy fix. This creates a world where interest rates trend low for long stretches, punctuated only by sharp but temporary spikes to curb inflation.

Here in Singapore, the neutral interest rate environment is likely to hover around 1%–2% in nominal terms. For cash savers, this is far from ideal. Parking large sums of idle cash in such an environment means you’re constantly battling low returns and erosion of purchasing power.

This is where annuities deserve a closer look.

If you don’t foresee tapping your cash for spending or investments in the next 10 years, annuities can provide a higher internal rate of return (IRR) while still offering comparable safety and withdrawability when necessary if a better opportunity arises.

Long story short, in today’s structurally low-interest-rate world, savers can no longer afford to rely solely on the conventional tools they’re used to. To extract better long-term value from idle cash, an annuity provides the right mix of stability, return, and long-term payout certainty. The trade-off, of course, is a bit of short-term flexibility — but for long-term savers, it’s a fair exchange.

If you'd like to explore this option further or if you would like to assess your financial plans more holistically, you can reach out to me directly: