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SSB, T-bill and fixed deposits: How to maximise your savings with low-risk tools
In times of high inflation and rising rates, experts recommend low-risk investment and cash alternative products
Ms Denise Lim started looking into investing early this year, amid inflation fears. The 27-year-old project manager wanted to find a way to keep up with the rising cost of living by making her money work harder, instead of relying on just her salary.
“Before that, I didn’t quite understand or feel the impact of inflation. But once I started to read about it, I couldn’t stop noticing how my daily necessities – from food to transport – are becoming more expensive,” says Ms Lim.
“I’m afraid that it will get worse. There’s not much I can do about my income because salary increments only happen once a year.”
Her fears reflect widespread sentiment. The latest Singapore Index of Inflation Expectations report released on Monday found that in September, Singaporeans expected headline inflation for the year ahead to be 4.6 per cent – up from 3.9 per cent in June.
The September figure is an 11-year high; The last time it polled at 4.6 per cent was in December 2011. In contrast, the third-quarter average for the years in between (2012 to 2021) was 3.18 per cent, says the report.
Published jointly by DBS and Singapore Management University, it polled 500 randomly selected individuals who represent a cross-section of Singaporean households.
It notes that Singaporeans surveyed also feel that they will have to fork out more because of rising prices, even if they cut back on spending.
Investing amid uncertainty
Ms Lim’s expectations of higher prices have prompted her to save and invest more. She has also invested half of her five-figure savings in Singapore Savings Bonds (SSBs). SSBs are issued and fully backed by the Government.
An August DBS study found that millennials (ages 26 to 41) like Ms Lim and baby boomers (ages 58 to 76) may be in a better position to fight inflation, as the growth of their investments outpaced expenses over the past year.
“I chose to invest in SSBs because it’s low-risk. I don’t want to just leave my money sitting in my bank account, but I also don’t want to take too much risk, especially when markets seem so volatile,” says Ms Lim, who is single and lives with her parents in a four-room Housing Board flat.
Monetary Authority of Singapore (MAS) data shows that next month’s issue of SSB opened at record highs – a first-year interest rate of 3.08 per cent and a 10-year average return of 3.21 per cent.
Many others in Singapore are also squirrelling away their money in low-risk investment vehicles and cash alternative products.
Applications for SSBs have been rising. It reached over $2.4 billion in August, which had a 10-year-average return of 3 per cent. In October, there were $1.1 billion worth of applications for the $900 million allotted to retail investors by MAS.
“Rising interest rates, coupled with an inflationary environment, are pushing investors to seek higher yields to safeguard the value of their money,” notes Ms Evy Wee, head of Financial Planning, Investments and Insurance Solutions, DBS Bank.
“Higher inflation not only drives up costs of living, but cash sitting idle in low interest bank accounts is effectively losing its value over time too,” Ms Wee adds.
Making your money work harder
Beyond SSBs, what other low-risk investment vehicles and cash alternative products can you consider to make your surplus funds work harder? Here are some that DBS’ head of Financial Planning Literacy Lorna Tan recommends:
T-bills: T-bills are short-term tradable Singapore Government Securities (SGS), available at six-month or one-year tenors. T-bills do not pay out interest, unlike SSBs and SGS bonds. Instead, they’re issued at a discount to the face value. Upon maturity, you will receive the full face value.
If you can set aside your money for a year, you can consider investing in one-year T-bills. They offer higher yields compared to six-month ones, as there is more risk priced into the security due to the longer duration.
SGS bonds: These are longer-term bonds that range from two to 50 years. You can receive regular interest payments on the amount you invest every half a year starting from the month of issue.
For example, if you buy $10,000 worth of 50-year SGS bonds at a coupon rate of 3 per cent, you will receive two payouts of $150 twice every year, until the bond matures.
The minimum amount to invest for both T-bills and SGS bonds is $1,000.
Fixed deposits: Banks in Singapore have been aggressively raising their fixed deposit rates, in tandem with the rise in borrowing rates. Fixed deposit rates offered by local banks now hover around 3 per cent per year for a 12-month tenor, says Ms Tan.
How it works is simple: You deposit a lump sum of money over a specified period, and receive a fixed amount of interest at regular intervals.
Savings plans: These are available with or without an insurance component. Depending on the plan, you either lock up a lump sum or contribute a fixed amount of money at regular intervals.
For example, POSB’s Save-As-You-Earn account, which is not insurance-linked, requires you to contribute a fixed sum for the first two years. You can earn 2 per cent annual interest on your savings.
Savings accounts: Higher-yield savings accounts can help you maximise your savings, though you will typically need to fulfil a set of criteria each month to unlock the bonus interest.
Ms Tan gives the example of the DBS Multiplier, which can offer up to 3.5 per cent interest per year if you credit your salary to the account and transact in eligible categories like credit card spend, insurance and investments.
Cash management accounts: These are typically offered by investment platforms, and the money is invested in cash funds, money market funds and short-term duration bonds. Net yields can range between 1.5 per cent and 3.5 per cent, though these are projected and not guaranteed, says Ms Tan.
One example is the SaveUp portfolio, available on DBS’ robo-advisory platform digiPortfolio. It consists of three to six fixed income unit trusts, and is a conservative portfolio for those who have a lower risk appetite.
Money market funds: A type of mutual fund that invests in highly liquid, short-term investment instruments. This includes cash equivalent investments and bonds that are close to maturity.
Money market funds are designed to be low-risk investment vehicles. But since these are still mutual funds, your capital is not guaranteed, Ms Tan reminds.
This is the last of a four-part series titled "Win the race against inflation", in partnership with
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