Should You Lock In The Best Fixed Deposit Rates Now? What About Singapore Savings Bonds And Cash Management Accounts?

In line with rising interest rates, banks have increased their fixed deposit rates and robo-advisors have upped the projected returns of their cash portfolios. The 10-year average return for Singapore Savings Bonds has also been rising to keep pace with higher rates.

With interest rates widely expected to rise further, which product is better for your cash savings?

What is a fixed deposit?

A fixed deposit (also known as a time deposit) is a type of account that allows you to earn a fixed amount of interest when you deposit a sum of money over a certain amount of time. 

Your money is usually locked up for the specified duration and most banks require a minimum deposit of at least S$20,000 for their promotional rates.

Latest bank fixed deposit rates in Singapore 

Across the local banks, UOB is offering one of the highest rates at 2.6% for a 12-month fixed deposit. However, you need to have at least $20,000 lying around to meet the minimum deposit amount.

At foreign bank RHB, you can earn 2.7% per annum but your money will need to be locked up at that rate for 24 months. This may not be ideal if interest rates rise further in the months ahead.

Best fixed deposit rates in Singapore
Source: Respective websites, data accurate as of 9 Sept 2022

What are Singapore Savings Bonds?

Singapore Savings Bonds (SSB) are a type of bond that pays out interest every six months. They are backed by the Singapore government and have a 10-year maturity; the longer you stay invested, the higher your interest rate earned. 

In the October 2022 issue for instance, the SSB interest rate increases from 2.6% in the first year to 2.99% in the 10th year. 

October 2022 SSB issue

Unlike fixed deposits where a penalty is charged for early withdrawal, you can withdraw your money anytime without penalties.

Latest Singapore Savings Bonds interest rates

The rates for Singapore Savings Bonds vary each month. Here are the 10-year average returns for past month issues:

  • August 2022: 3%
  • September 2022: 2.8%
  • October 2022: 2.75%

What are cash management accounts? 

Cash management accounts are low-risk investment products that let you earn decent yields on your spare cash, while offering very high liquidity.

When you make a withdrawal, you typically receive your proceeds in 2 – 3 business days. Need your cash back urgently? Syfe Cash+ is the only provider that offers same-day withdrawals.

Syfe Cash+ same-day withdrawal

This is unlike fixed deposits where your lock-in is subject to the product tenor, and Singapore Savings Bonds where you receive your withdrawal by the 2nd business day of the following month.

The best cash management products in Singapore

Headlines often tout “the best cash management accounts in Singapore” without really explaining what makes a solution “the best”. 

At Syfe, we believe that cash management accounts should offer stability (i.e. no negative returns or drawdowns) alongside attractive yield. After all, you’re parking your cash for short-term needs like your emergency fund or a big upcoming purchase. You wouldn’t want your portfolio value to decline just when you need your funds.

That’s why it’s important to look beyond the advertised yield to consider factors like risk and withdrawal times. A product may have a high projected yield, but it will also come with a higher drawdown (i.e peak to trough fall in return). There may be negative months when bond markets drop. Can you stomach that volatility in your cash savings?

In the 2022 year to date, Syfe Cash+ has consistently delivered steady returns and has never experienced a single week of negative returns.

The risk of locking in current rates 

As shown above, fixed deposits and Singapore Savings Bonds currently offer attractive rates. But in a rising interest rate environment, is it worth locking yourself in at those rates?

Just two months ago, these were the promotional rates being offered by banks in Singapore. If you had placed your funds back then, a significant part of your spare cash would have been locked in at a lower rate.

Image credit: Seedly

For illustration, these are the promotional rates for September, as compiled by Seedly.

Image credit: Seedly

The banks may continue to revise their fixed deposit rates higher in subsequent months as interest rates continue to rise. But how many people have multiple lump-sums of $20,000 lying around to capture such promotions?

The interest rates of Singapore Savings Bonds are also locked into a fixed schedule. If the November 2022 issue offers higher rates, you will need to spend time and effort buying those new bonds. There’s also the risk you might not even get your full allotment due to oversubscription, as investors of the August 2022 tranche faced.

On the flipside, the projected returns of cash management solutions are not locked in. That’s how Syfe raised the projected yield of Cash+ twice in three months

As interest rates continue to climb, the projected returns for Syfe Cash+ will move higher in tandem with rising rates. You’ll be able to capitalise on those potentially higher returns without the capital commitment of opening a new fixed deposit account or the hassle of buying new SSB issues!

What should you do for your cash?

With interest rates poised to rise further, flexibility is a valuable advantage. Rigid interest rate lock-ins can constrain the earning potential of your cash savings.

Cash management accounts offer a flexible alternative to fixed deposits and Singapore Savings Bonds. For example, the projected returns of Syfe Cash+ will automatically move higher in tandem with rising interest rates.

Syfe Cash+ key features

Creating a Cash+ account is simple and fuss-free. All it takes is 3 minutes to sign up for Syfe Cash+ using Singpass.

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