• Daniel Lee

The Ultimate Guide On Short-Term Savings In Singapore

Updated: Aug 25

Updated as at 09 May 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:

  1. Savings account

  2. Fixed deposits

  3. Short-term endowment

  4. Non-participating short-term promotional endowment

  5. Non-participating universal life plan

  6. Singapore Government Savings Bonds

  7. 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

  1. Is to be used for emergency purposes

  2. 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

If you want returns and don’t mind giving up flexibility go for endowments.


If you want both the flexibility and returns, go for either money market funds or 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 fulfil 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 the 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.



Fixed deposits

Realistic Annual Return Rate: 0.2% to 0.7%


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 May 2021, the highest interest rate is offered by CIMB which stands at 0.7% per year locked in for 24 months for amounts above $10,000.


For the context of this article, I will be applying the CIMB 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: 1.25% to 2.10%


Commonly known as a "Savings plan", short-term endowments (less than 5 years duration) have the following traits

  • In terms of policy duration, it will usually range from 3 to 5 years.

  • In terms of premium term, it is usually in the form of a single premium


For the context of this comparison, we will be using single premium non-participating policies with a return estimate of 1.25% per annum over 5 years.


Given the situation today, short-term endowments are really hard to come by as it just isn't lucrative enough for companies to even consider providing it as part of their product offerings.


As such, if you're looking at using endowments, you'd be better off for med-to-long term endowments that has a duration of 10 years and above. However, with a duration that long, you may be better off investing so... do take note of that.


Short-term Endowments (Promotional)

Realistic Annual Return Rate: 1.5%


Every now and then, insurance companies will come out with short term endowments promotions that provide decent 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 as $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

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 1.50% for 3 years. The reinvestment rate will also be assumed at 0.7% 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% - 1.50%


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

  • Interest returns are not subjected to risks


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 and can be changed anytime

  • The maximum account value entitled to the bonus interest rate is low

  • The minimum account value can be changed anytime


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 0.70% per annum, assuming that you put it into the fixed deposits.



Singapore Government Savings Bond

Realistic Annual Return Rate: 0.38% to 1.37%


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 June 2021. As interest of SSB is paid out, they will not be reinvested and instead, I will be applying the fixed deposit rate of 0.7% on the interest earned.



Money-Market Fund / Cash Management Account

Realistic Annual Return Rate (after cost): 0.30% - 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

  • 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

  • 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 1.5% 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.


Looking for an independent financial advisor to help you tailor your financial plans? Do check out my past work and get in touch with me and learn more about how we can work together:


Connect with me on social media platforms to receive updates on future content! You can also slide into my DMs if you have any questions, I’ll be happy to help :)





Disclaimer:

This article is meant to be the opinion of the author

This article 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

The information that was presented in this article are taken from the websites of the respective named providers

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