Interest Rate Cut On Your High Yield Savings Account? Here’s How You Can Still Make Your Money Work For You

Banks in Singapore have come under pressure as central banks worldwide slash interest rates to support growth and mitigate the economic fallout from COVID-19. It’s therefore no surprise that interest rates on popular high yield savings accounts such as DBS Multiplier, OCBC 360, UOB One, and StanChart Bonus$aver have been lowered. Most recently, OCBC again cut the interest rate on the 360 account, halving the salary credit bonus across the board.

Even Singapore Savings Bonds (SSB) – often seen as a better alternative to park your savings as compared to fixed deposits – have not been spared. Singapore government bonds have been hitting new record lows in interest rates over the past couple of months.

If you’re looking to beat Singapore’s current inflation rate of 1.9% and grow your wealth, here’s how you can still earn higher returns on your cash.

What to do with your cash savings

To get a shot at boosting your net worth, you need to do more than just earn money and keep it in your bank. As bestselling author Robert G. Allen said, “How many millionaires do you know who have become wealthy by investing in savings accounts?”

Instead, invest in financial instruments that will help you grow your money over time. There are many options to choose from – stocks, bonds, real estate investment trusts (REITs) and more. You can find investments that will fit your risk profile and financial needs, and even combine them to create a more diversified and safer portfolio. 

In this ultra-low interest rate environment, ask yourself if you are holding on to too much cash. One way is to think about dividing your money into three pots. One for your daily expenses, one for your emergency fund (containing at least 3 months of living expenses), and one as surplus cash for your investments. 

Things to consider before investing

Your savings account should ideally only hold cash for your day to day purchases and your emergency fund. The rest should be invested according to your risk profile, investing horizon and financial goals. Not sure about your risk profile? Syfe’s risk assessment tool can give you a better understanding of your risk appetite and the investments you may be more suited for. 

Once you have decided how much money you can allocate to your investments, don’t wait for the “best” time to invest. There is no such thing. Time in the market – growing your money over time thanks to the power of compounding returns – is better than timing the market. 

An investing strategy Warren Buffett recommends 

If you don’t have the time or inclination to do extensive research on the types of investments that will fit your short- and long-term goals, Warren Buffett has a hot tip for you: low-cost index funds. It is a strategy that Buffett has championed for years.

Index funds are passive investments that allow people to invest in a broad cross-section of the market with little effort and low fees. One type of index fund is an exchange traded fund (ETF).  ETFs track and replicate the performance of a market benchmark or index, such as the S&P 500 index which measures the performance of the 500 largest US companies.

During the recent Berkshire Hathaway annual shareholders meeting, Buffett even remarked, “In my view, for most people, the best thing to do is to own the S&P 500 index fund.”

Indeed, a fund like the SPDR® S&P 500® ETF Trust, more commonly known as SPY, can be an excellent choice for long-term investors. If you invest in SPY, you get instant diversification because you’re effectively investing into all 500 companies held by the fund. It is a less risky way to invest in global stocks as well. The S&P 500 consists of many of the most successful companies in the world such as Apple, Facebook, Microsoft, Visa, and JPMorgan Chase. 

REITs for better yield 

In this lower-for-longer interest rate environment, yields offered by Singapore REITs are now more attractive than bond yields. For instance, the average dividend yield of S-REITs is around 4 to 5%, compared to the 10-year SSB interest rate of 1.05% (SSB June 2020 issue).

Despite the challenges REITs have faced due to COVID-19, the overall long-term outlook for REITs remains positive. Firstly, the value of REITs is well-anchored by physical real estate, which in land scarce Singapore, trends upwards over the long term. Secondly, most REITs remain financially sound with strong balance sheets, low gearing and decent dividend yield over the medium term.

With REITs currently trading at lower valuations, investors now have the opportunity to stock up on quality REITs at discounted prices. As the economy recovers, this could provide upside potential as well. If you are planning to invest for the long haul, REITs can be a valuable addition to your portfolio.

Put your money to work

While there is nothing you can do about the declining interest rate environment, there are still ways you can grow your cash savings outside of your high yield savings account. Investing is a great way – and you have a range of options that can meet your risk profile and investment return needs. 

Getting started is easy. Open a brokerage account or go with a robo-advisor like Syfe if you prefer having an expert manage your investments for you. With Syfe’s ready-made ETF and REIT portfolios, growing your wealth can be simple and hassle-free.