Death of high yield savings accounts in Singapore
As banks start to lower their interest rates on savings accounts, are we starting to see the end of high yield savings in Singapore? Are there any other places that we can use to park our cash instead of losing its value due to inflation?
In March, the feds have announced that they are cutting interest rates to an all-time low of 0%. This subsequently triggered a domino effect which saw the interest rates on savings accounts get slashed across the board. Even the Singapore Savings Bond saw its rate cut to a meagre 0.80% 10-year average yield. In recent weeks, last standing banks like CIMB and Standard Chartered have also finally followed the pack and made their own rate cuts.
Is it that big of a deal?
This is a statement that I constantly get from people. Does it really matter if banks start to cut their rates? It’s just a difference of 1% per year. What difference will it make to your wealth?
Let’s try to determine the impact of this with numbers. We assume that you have $30,000 in cash that’s parked in a bank account for 20 years. We will also assume that you do not inject any more money into the account for said 20 years.
At the end of the year 20, we can see that we gained an additional $7461.07 with the 2% interest rate. Of course, if your principle amount is higher, then the difference will be even larger. Will this difference change your lifestyle? Probably not. But is it worth the time finding a better account? I will argue yes.
This is not about money pinching, but training the mindset. If we care about such small numbers, then we’ll be much more thoughtful when it comes to decisions involving bigger numbers.
Current bank interest rates comparison
It’s very difficult to do an apples to apples comparison on high yield savings accounts as every account has its own specific set of requirements that caters to different target audiences. I’d recommend everyone to try out Seedly’s Savings Accounts Calculator.
By inputting your specific circumstances, they are able to filter out the best bank account for you. For me, the best account to me to use currently will be the DBS Multiplier account as I’m able to consistently achieve an interest rate of 2.2% pa.
Alternatives to High Yield savings account in Singapore
If you’re wondering if there are any other alternatives to bank accounts, they definitely exist. Here are some products that I think are certainly worth the try.
StashAway recently announced their new Simple product which is essentially a cash management service. There is a projected return of 1.9% pa and your money are invested in low-risk money market funds. Take note that your principal amount is not guaranteed so there’s a risk of losing some money there though the risk is really small.
As mentioned in my recent article on investing with SRS, Stashaway Simple is a great way to park your uninvested SRS funds. It is one of the safest and most liquid way to make sure that your SRS monies are not only earning a paltry 0.05% interest.
Singlife is a life insurance plan that offers a 2.5% pa interest. The best part about this plan is that your principal is guaranteed and is fully liquid. This means that you can move your money in and out of the account whenever you want.
The downside is that only the first $10,000 will earn that high 2.5% interest. Anything more up to $100,000 will only earn 1% which is still respectable in current standards.
The reason why they are able to offer such high rates is because the money is invested in money market funds, similar to what StashAway Simple is doing. If you’re interested, you can read more in my in-depth review on the account.
If you don’t mind locking up your money, then this is quite a good option as compared to Fixed Deposits. It offers a guaranteed 2.68% pa interest for the first 6 years of your deposits. If you withdraw after the 6 years, you’ll not be charged with any withdrawal penalties. However, you’ll need to put in a minimum of $30,000 which is quite a lot to be locked up for many young Singaporeans.
Etiqa is quite a reputable insurance company in Singapore that’s part of Maybank so you can rest assure that your money is safe with them.
As the feds recently announced, they expect the 0% interest rate to continue until at least 2021 to tide over the current economic situation. This will likely further depress the bank accounts for the next couple of years. I foresee the interest rates of DBS Multiplier to get further reduced in the coming months.