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Singapore Savings Bonds returns are at a record low. Where else can you park your money?

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Singapore Savings Bonds returns are at a record low. Where else can you park your money?

 

Let's face it, interest rates are near rock bottom.

Currently at a 5-year low and posting figures similar to the aftermath of the GFC in 2010. It's no wonder returns on short term guaranteed deposits and cash alternatives like Bank Fixed Deposits (FDs) and our dear Singapore Savings Bonds (SSB) are also looking less-than-stellar.

Just 1.5 years ago, the SSB was once giving a generous one year 2.01% return. Now? 0.88% as of August 2020. Just slightly more than a quarter of its glory days.

Bank FDs aren't looking that much prettier too with the best 12 month rate giving you just 0.8-1.15%.

But the truth is, you still need to save and set aside money that you would need in the short term, devoid of volatility, provides guaranteed returns, and is also capital guaranteed.

 

So what are your options today?

Singapore Savings Bonds returns are at a record low. Where else can you park your money?

The SSB and Bank FDs are still decent options as they serve the above objectives. But are they your best choice today? Maybe not.

This is why we’re considering Short-Term Single Premium Guaranteed Endowments. These are insurance policies that are non participating which means they don’t earn variable bonuses and are fully guaranteed. What you see is what you get.

And unlike typical endowment plans that require you to save over many years and get money back many years after that, these plans are a one-time payment and usually mature within 1 to 3 years. Truly short-term. And as they are insurance contracts, they would provide additional payouts should you meet an untimely demise during the term of your policy.

Some insurers have even added additional benefits like daily cash payouts should you land yourself in the hospital for certain conditions like Covid-19 and even access to a doctor via video consultation, a useful benefit during these times.

 

But putting aside these fringe benefits, how do these policies stack up against today's options?

We've discussed SSB and FDs, and now these Short-Term Single Premium Guaranteed Endowment Plans but one other option we have not mentioned are High Yield Savings Accounts (HYSA) like the DBS Multiplier, OCBC 360, UOB One Account still providing you a weighted 1-2% p.a if you jump through the multiple hoops of crediting your salary, spending with their credit cards, or insuring and investing through the bank.

So let's put these options side by side. From lowest to highest returns to see how they stack up.

Product Rate Liquidity Take Note
Singapore Savings Bonds  ~ 0.88% (August)  Immediate, interest pro-rated  $2/subscription
Fixed Deposits  ~ 0.8 - 1.15% Immediate, interest given up Potentially high min. deposits 
Single Premium Endowment  ~ 1.05 - 2.1% 1 - 3 year lock in If surrendered early, may face loss of capital
High Yield Savings Accounts  ~ 0.6 - 2.5% Immediate, no penalty Hoops to jump through and has caps

 

As we can see, if you qualify for HYSA and can max out the full benefits they provide, they are great options that can give you higher returns, immediate liquidity, and at practically no cost. However do note that these HYSA can change their rates and T&Cs anytime as shown over the recent months and last few years, either lowering returns or making it slightly harder to hit the top tier bonus rates, an event coined as ‘nerfing’.

But sadly, not everyone may qualify for them, as they may not have a salary to credit or may want to avoid owning a credit card, or it’s also possible that you may have maxed them out and are now looking at where else to place your money. Which in that case, we’d argue that the aforementioned Short-Term Single Premium Guaranteed Endowment Plan is then the favoured option. The products are not direct alternatives but options with similar risk and rewards. Do be mindful of the differences before committing to your financial decision.

But on that note, there is one crucial consideration we would need to talk about though. And that is the lock-in of the plan.

While the other products mentioned allow for withdrawals at little to no cost, these endowment plans would have early termination fees that may return you with less than you purchased should you surrender before the end of the tenure.

This means you’ll need to be very sure that this money is not money you need within the policy term. This could be perfect to earn interest on money set aside for a down-payment on a home or money meant for a wedding, the honeymoon, or renovation that’s needed mid 2022-2023 but not before. So you gotta time it nicely.

 

Isn’t lock in bad? Why get a lock in?

We understand and have emphasized that today’s interest rates are pretty low, but low can still go lower. While we may not see negative interest rates unlike certain parts of Europe or Japan, we may see borderline absolute zero. That’s as good as keeping your money in a tin box or underneath your mattress. Not very savvy.

Locking in a 1.05-2.1% p.a interest rate today can protect you from further falling rates which may especially affect the HYSAs mentioned as their rates can fluctuate.

So you may consider moving some money from those accounts to lock-in this favourable rate to protect yourself from changes to the accounts.

I’d liken this to almost the exact opposite to how you should look at planning for your mortgage loan interest. While you may want a floating rate instead of a fixed rate to capitalise on rates dropping so you pay less interest, you should want a fixed rate on your savings to protect you from rates dropping so you earn more.

With interest rates unlikely to rebound and skyrocket anytime soon, a locked in rate of 1.05-2.1% p.a for 1-3 years may be the most attractive option out there.

If you’re interested in such a policy we may have one for you to check out over here

Whatever you choose, we wish you well.

Pick the best deal. It’s in your interest (ha, ha).


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Information is accurate as of 28 August 2020.
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