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Three very low risk instruments available for you to park your hard earned money, which one should you choose? Here’s a look at the current rates and benefits of each option.
The severe recession, pandemic, and lowest employment rate in history have highlighted a very important lesson: that we should have enough savings for rainy days.
However, an OCBC survey revealed that 2 out of 3 Singaporeans don’t have enough savings to last 6 months or more, which is indeed concerning. The importance of having an emergency fund to provide that financial safety net in the event of an unexpected financial setback is crucial.
First, a quick overview of three low-risk savings instruments available to save you that extra cash.
| Deposit repaired | Singapore Savings Bonds (SSB) | Savings account | |
| Interest rates (December 2020) | 0.2% – 1.3% annually | 0.27 percent – 1.64 percent per annum (Average yield 0.90 percent per annum over 10 years) (Yields differ with each month’s issuance) | 0.3 percent to 3.8 percent annually |
| Tenure / Duration | 3 to 36 months | Up to 10 years, with higher interest accrued in recent years | None |
| Min. Deposit amount | $ 1,000 or even $ 10,000 and more for higher rates | $ 500 | Some savings accounts require a min. Initial deposit of $ 1,000, others do not impose a minimum. An average daily balance of $ 1,000 to $ 3,000 is required to avoid falling below the rate. |
| Max. deposit amount | No cap. Higher amounts tend to earn higher interest. | $ 200,000 per individual | No cap. High interest rates do not necessarily apply to all savings amounts. |
| Liquidity | Low: can be withdrawn, but early withdrawal could result in loss of interest earned | High: can be withdrawn at any time. However, you will not enjoy the higher interest rates obtained in recent years. | High: can be withdrawn at any time |
The interest rates you can earn on these low risk financial instruments are highly dependent on the current economic environment. As economies around the world battle Covid-19, interest rates will remain low, making it difficult to get attractive interest rates on your savings in the near future.
1. Fixed deposit
What it is: fixed deposits (also known as term deposits), they earn you guaranteed interest on the money you deposit in the bank during a specific period. The money in the fixed deposit will earn interest during this fixed period of time, and the interest will be paid at regular intervals, often quarterly or annually.
While you can withdraw your money from fixed deposits, if you do so before the tenure ends, you will earn less or no interest.
Fixed deposits are practically risk free. But if you have any doubts, you will be happy to know that your deposits are insured by the Singapore Deposit Insurance Corporation (SDIC), up to $ 75,000.
Current Rates: Current interest rates you can earn on fixed deposits range from 0.3% to 1.5% per year. Fixed deposit rates tend to change monthly, and the interest rate you earn will depend on the amount and tenure of your deposit.
The tenure can range from one month to four years, with more attractive interest rates given on two to three year tenures.
Here are the fixed deposit options available in Singapore.
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| Bank | Interest rate | Min. Deposit amount | Tenure |
| Bank of China | 0.7 percent per annum | Not specified | 36 months |
| CIMB | 0.3 percent per annum | $ 1,000 (or $ 100,000 to earn 0.35 percent annually) | 3 months |
| Citibank | 0.1 percent per annum | $ 10,000 | 6 months |
| DBS / POSB | 1.3 percent annually | $ 1,000 | 18 months |
| Hong Leong Finance | 0.6 percent per annum | $ 20,000 | 24 months |
| HSBC | 0.35 percent per annum | $ 30,000 | 6 months |
| ICBC | 0.75 percent per annum (through electronic banking) | $ 500 | 12 months |
| Maybank | 1 percent pa | $ 1,000 | 36 months |
| OCBC | 0.45 percent per annum | $ 20,000 | 12 months |
| RHB | 1 percent pa | $ 1,000 | 36 months |
| Standard chartered | 0.45 percent per annum (the priority bank prime rate is 0.55 percent per annum) | $ 25,000 | 3 months |
| UOB | 0.5 percent per annum | $ 20,000 | 10 months |
How much can you deposit:
- Minimum: generally $ 1,000 or $ 5,000. To enjoy the promotional fixed deposit rates offered by banks, you will generally be required to deposit a larger amount, such as $ 20,000 or more.
- Maximum: the sky is the limit. Unlike SSBs, you can deposit as much as you want in fixed deposits. You could also get higher interest rates for larger deposit amounts. Unlike a savings account, the amount you deposit in the fixed deposit is fixed and you cannot top-up the account. However, you can open a separate fixed deposit account.
| Pros | Cons |
| No limit to the maximum amount | Low interest rates |
| Discipline imposed to help you keep this money intact, for a large expense, such as a wedding or a future down payment for HDB | Low liquidity. You lock your money for a fixed period of time, until the fixed deposit reaches maturity. |
| Flexibility to decide the tenure of the fixed deposit | A minimum deposit amount is required, which sometimes requires larger amounts to earn higher interest |
2. Singapore Savings Bond (SSB)
What it is: SSBs are a type of Singapore Government Securities (SGS) issued and backed by the Government of Singapore. At the time of issuance, interest rates for the entire 10-year term are fixed and locked for each issue. This interest rate differs with each month’s issuance and is set based on SGS’s average returns for the previous month.
SSBs allow you to earn additional interest on your savings. The interest rate starts out low, increasing each year through year 10.
The longer you keep your SSB, the more interest you will receive. Interest is paid every six months and will be automatically credited to the bank account linked to your CDP Securities account.
Investors in the Supplemental Retirement Plan (SRS) can also use their SRS funds to invest in SSB.
Current rates: As the economy falters and interest rates fall, sugary drinks have also become less attractive. This month, the 10-year average return is 0.9% per year, starting from 0.27% in interest in year 1 and ending at 1.64% in year 10.
To find the latest rates for this month’s SSB, visit the MAS website here.
Interest rates on Singapore Savings Bonds (SSB) have dropped significantly in recent months.
Looking back on better times, on the July 2019 issue, SSB interest rates were 1.93 percent in year 1 and rose to 2.55 percent in year 10, giving an average yield of 2.16 percent per annum. SSB emissions here.
How much can you deposit:
- Minimum: The minimum amount is $ 500. Each SSB purchase must also be in multiples of $ 500. Banks will charge a non-refundable transaction fee of $ 2 for each request and redemption request.
- Maximum: Each individual can have a maximum of $ 200,000 in SSB.
| Pros | Cons |
| Risk free, fully backed by the Singapore government. | Low interest rates, with higher interest rates only earned towards the end of the 10 years |
| A low minimum amount of $ 500 is required | Up to $ 200,000 per person |
| High liquidity. You can withdraw your money at any time, without penalties. However, you will lose the highest interest rates in recent years. | SSB interest rates change every month for each issue |
| You can use your SRS funds to buy SSB | $ 2 transaction fee charged for each request and redemption request |
To buy SSB, you can request it through DBS / POSB, OCBC and UOB ATMs or Internet banking. SRS investors can apply through their SRS operator’s internet banking.
3. Savings account
What it is: Savings accounts allow you to earn interest on the money you keep in the account. With returns of up to 4 percent per year, the amount of interest you earn depends on the conditions of the savings account.
Some savings accounts, such as CIMB FastSaver, do not set any conditions for earning interest other than that you keep your money in the account. Other accounts, like DBS Multiplier, OCBC 360, and UOB One, make it work for your money.
These high-yield savings accounts have ‘leveling criteria’ such as crediting your salary, spending on one of the bank’s credit cards, starting investing, applying for a loan, and more to earn higher interest rates.
Current rates: Savings accounts have more unpredictability. Over the past few months, Standard Chartered, CIMB, OCBC, and UOB have announced changes to the interest rates on their savings accounts.
Unlike fixed deposits or SSBs, where the interest rate you earn over months and years is clearly stated up front, savings accounts can see changes in no time.
Here is an overview of the interest rates that you can potentially get with the various banks in Singapore. Keep in mind that many of these savings accounts require you to go through hoops to earn higher interest.
How much can you deposit:
- Minimum: Opening an account requires an initial deposit of $ 1,000. Typically, there is a fee below $ 2 or $ 5 if the average daily balance falls below $ 3,000.
- Maximum: While there is no maximum for the amount of cash you can keep in your savings account, most of these savings accounts limit the amount of savings that will generate high interest rates.
| Pros | Cons |
| The highest interest rates among the three options | You have to go through hoops to earn higher interest |
| High liquidity. Money can be put in and taken out at any time. | Interest rates are subject to change at any time, although banks tend to give a few weeks’ notice before the change. |
| There is no minimum period required to earn interest. You earn interest every day that the money is in the account. | You could incur lower fees than or due to early account closure |
The current economic outlook and low interest rate environment have resulted in lower interest rates for many savings accounts, similar to how fixed deposits and sugary drinks are seeing lower interest rates.
In addition to putting your extra money into these instruments, you can also consider insurance savings plans that offer more attractive returns, or start investing your money to grow your wealth.
This article was first published in SingSaver.com.sg. All content is displayed for general information purposes only and does not constitute professional financial advice.
