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.
Whatever you choose, we wish you well.
Pick the best deal. It’s in your interest (ha, ha).