- Daniel Lee
The Ultimate Guide On Short-Term Savings In Singapore
Updated: Mar 30
Updated as at 29 January 2021.
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Introduction
In this article, we will be answering the question: "Where should I park my cash savings for a higher return?" by examining the different financial instruments available.
The different instruments that we will be talking about will be:
Savings account
Fixed deposits
Short-term endowment
Non-participating short-term promotional endowment
Non-participating universal life plan
Singapore Government Savings Bonds
Money market funds
We will be running scenario analysis for a cash balance of $50k, $100k, $150k, and $200k that is to be saved for a period of 5 years. A brief comparison of the different products within each category and my personal opinion will also be provided.
What classifies as short-term savings
Generally, I would consider short-term savings to be cash that
Is to be used for emergency purposes
Has a duration of 1 – 5 years
You should not be chasing after returns if you need the funds in less than a year as you simply cannot afford the cost of sacrificing part of your flexibility nor expose it to unnecessary risk.
Summary of analysis
Based on the returns and flexibility, if you want
the return and don’t mind giving up flexibility = Endowments
the flexibility and returns = Money Market Funds & Non-participating universal life policies
Personal Comments and Comparison
Savings account (e.g. multiplier account)
Realistic Annual Return Rate: 0.05% to 1.03%
Savings accounts are often the “go-to” accounts to farm for short-term interest returns.
Generally, there are two parts to a savings account.
Base interest rate – that you will get no matter what
Bonus interest rate – that you will get for every criterion that you hit
Within the category, it is really difficult to spell out a clear winner as each bank’s term and conditions [T&C] differs from one another You will really have to decide for yourself, based on your current situation, which bank’s T&C suits you the best.
Be very careful about the T&C as certain banks only provide a bonus interest rate that is temporary of nature – i.e 12 months – which would inflate their nominal interest return for the first year during your comparison.
Pros of savings account:
Higher interest rates
Flexibility
Cons of savings account:
Cap on bonus interest rate (usually $50,000 - $70,000)
Hassle to fulfill the criteria
Interest rates may be lowered at the bank’s discretion
To find out which is the best savings account in Singapore that suits your need, visit Seedly here.
For the purpose of this article, I will be using Bank of China as the representation for this category with an assumed salary credit of less than $6,000 and spending of less than $1,500 a month. The prevailing interest rate would be 0.9% for the first $80,000 and 0.4% For the next $920,000.
Investments and Insurance criteria will be excluded as, from a financial planning perspective, it is not a smart move to base your insurance and investment decision on temporary bonus interest rates in a savings account. (if you’ve done that, god bless you)
Fixed deposits
Realistic Annual Return Rate: 0.2% to 1%
Gone were the glory days of 2% fixed deposits promotion. These days, fixed deposits yield a return of up to 1%.
The interest rate differs in terms of the amount and duration of the deposit.
For fixed deposits that are available as of Jan 2021, the highest interest rate is offered by DBS which stands at 1.3% per year locked in for 18 months for amounts below $20,000. For amounts above $20,000, the highest interest rate is offered by Maybank which stands at 1% per year locked in for 36 months.
For the context of this article, I will be applying the Maybank rates and assuming that it remains constant throughout my calculations.
To find out which bank provides the highest interest rate on their fixed deposit, visit MoneySmart here.
Short-term Endowments (Non-Promotional)
Realistic Annual Return Rate: 2% to 2.1%
Commonly known as a "Savings plan", short-term endowments have the following traits
In terms of policy duration, it will usually range from 5 to 8 years.
In terms of premium term, it is usually limited to 2-5 years of payment
In terms of total returns, most policies focus on non-guaranteed returns to drive up the total return of the policies
For the context of this comparison, we will be using non-participating policies with policy term lower than 5 years as frankly, any period of above 8 years really isn’t short-term anyways.
For funds that are to be used for second and third-year premiums, I will assume a normal base savings rate of 0.10% (from B.O.C.)
To find out which is the best short-term endowment at the moment, get in touch with me here.
Short-term Endowments (Promotional)
Realistic Annual Return Rate: 1.00% to 1.60%
Every now and then, insurance companies will come out with short term endowments promotions which provide a decent amount of guaranteed returns a year.
Pros of Non-participating short-term promotional endowment:
Decent guaranteed return rate per year
The return rate is fixed over the tenure
The maximum amount may go as high to $1 million
The of Non-participating short-term promotional endowment:
Lock-in period of usually 3 years
Sells out freaking fast (within hours of launch – not even kidding)
Single premium
The minimum amount of usually $20,000
If you wish to be notified of such promotions, even before the tranche is officially launched, I will suggest that you join my telegram channel where I update and communicate to my clients and readers: https://t.me/updatesfromdaniel
For the purpose of this article, I will be using China Taiping i-Save as the representative of this category. The guaranteed interest a year is 1.60% for 3 years. The reinvestment rate will also be assumed at 1.00% a year after the 3rd year – with the assumption of putting it in a fixed deposit given the similar nature of the instruments.
Non-participating Universal Life Plan
Realistic Annual Return Rate: 1.00% - 2.50%
Another notable category that has been gaining popularity over the months is the rise of non-participating universal life plans that are designed to behave like a “savings account”. These are sold by insurance companies.
How does it work?
The plan automatically renews every year till age 100
Negligible insurance coverage
Provide guaranteed credit rates (a.k.a interest rate) for the first few years of up to a certain amount
Pros of universal life plans:
Crediting rates are usually guaranteed for the first few years
High flexibility in withdrawals (depending on contractual wording)
Loyalty bonus may be provided after certain policy years
Cons of universal life plan:
Crediting rates are not guaranteed after the first few years
The maximum account value that is permitted or entitled to the bonus interest rate is low
The minimum account value can be changed anytime at the insurer discretion
Notable providers in this area include:
For a comparison of the insurance saving plans, you can visit seedly here.
For the sake of the analysis, Singlife will be used as the representative of the category as it has the highest maximum account value cap of $100,000, unlike other providers that cap the amount to be at $20,000. For the amount on top of $100,000, I will assume a return rate of 0.40% per annum, assuming that you put it into the BOC savings account.
Singapore Government Savings Bond
Realistic Annual Return Rate: 0.32% to 0.89%
Singapore Government Savings Bond is the type of government bond that behaves like a savings account. When held till maturity, it provides the return of a 10-year government bond while enabling the bondholder to withdraw as and when you need it with a $2 transaction fee.
Personally, SSB was my go-to in the past, with an IRR of 2-3% without sacrificing any liquidity, it truly was the best short-term saving instrument. Currently, with the given interest rate, SSB is really not worth considering as there are better alternatives out in the market.
For the context of the article, I will be applying the rates of SSB for Jan 2021. As interest of SSB is paid out, they will not be reinvested and instead, I will be applying the normal base rate of 0.1% on the interest earned.
Money-Market Fund / Cash Management Account
Realistic Annual Return Rate (after cost): 0.25% - 2.00%
Another instrument that has been growing in popularity is the use of money market funds or cash management account by Robo-advisors.
How does it work - It is a collective investment scheme that utilizes the funds to invest in short-term investment-grade bonds or treasury bills
Pros of money-market fund:
Flexibility in withdrawals – as it is considered to be a form of direct investment
Decent interest return – depending on the underlying funds
No or low minimum balance - depending on the provider
Cons of money-market fund:
Capital and returns are not guaranteed and subjected to market forces
Cost of investment will erode performance
If you are interested in considering this instrument for the purpose of your short-term savings, you can refer to a comparison done by seedly here.
For the sake of the analysis, I will be using Syfe Cash+ as there is no minimum balance required and provides a net projected return of 1.75% per year.
TLDR (and self-plug)
Personally, here's how I'm managing my cash and short-term savings
Expenses: Savings account
Emergency funds: Singlife Account
Short-term savings (2-5 years): Money Market Fund
For a horizon of above 5 years, you may want to consider investments as an option. With interest rates at such low levels, investing had become a necessity rather than a luxury.
As consumers, we cannot afford to just idle our savings and watch them get eroded by the inflation rate over time. There is a sense of urgency to put our savings to work if we want to achieve our financial goals in the next 10-20 years.
If you’re looking to tailor an implementable financial plan or to improve your existing financial plans here’s why you should engage me to be your financial planner:
As an Independent Financial planner, I will provide you with a blueprint that spells out the steps that you will need to take and I’ll personally guide you along the journey to ensure that you are on track to meeting your financial goals.
So drop me a WhatsApp or Telegram message to set up an introductory session and discover how you can leverage my services to accelerate your growth and achieve your goals earlier.
Do follow my telegram channel to keep up with future promotions and market updates:
Do share the article with your friends and family who's complaining about the recent decrease in interest rates and need to see this.
Now if you’re still contemplating as to whether you should get in touch with me. My question to you is: “what’s the worst that could happen?”
The worst that could happen is that you spent 30 minutes with me to find out that I’m not the right match for you. If not, chances are is that you will step out of the meeting with greater clarity as to what your options are and what your next steps should be.
Daniel is a Licensed Independent Financial Consultant with MAS and a certified Associate Wealth Planner that provides advice in the following areas:
for investment and portfolio management advice - find out more here
for insurance and portfolio optimization advice – find out more here
for retirement planning advice– find out more here
Disclaimer:
This article is meant to be the opinion of the author and is for information purposes only.
This article should not be seen as financial advice
This advertisement has not been reviewed by the Monetary Authority of Singapore
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