Endowus Cash Smart: First Impressions
The death of the high yield savings account is really here. Right after publishing an article last week about decreases in interest rates, DBS has also announced that they are reducing the interest rates on their Multiplier account. With this change, its efficiency in generating returns for its customers is drastically reduced. Riding on the waves of cash management solutions and low interest rate environment, Endowus has recently introduced their Cash Smart product which advertises up to 2.2% pa rates. Is this too good to be true? Let’s find out.
First and foremost, Endowus Cash Smart is a cash management product. It invests in very safe investment products such as money market funds and short term retail bonds. The difference between this product and a deposit account is that your principle amount is not guaranteed. There is a very slim chance that you’ll lose a small amount of your money.
Endowus Cash Smart offers 2 types of investment options.
The Core product touts a projected return of 1.1% to 1.3% (after fees) and invests in safe money market funds.
For the Enhanced product, it is given an estimated 1.9% to 2.2% (after fees) returns and invests in short term bond funds on top of money market funds. This of course brings with it a higher risk as bonds are generally riskier than money market funds.
The advantage of investing in such products is its flexible withdrawal option. There is no minimum lock-in period and is especially useful for people looking to park their money temporarily. You can withdraw unlimited amounts without any additional fees charged.
Top up options
On top of a usual cash account, you can create an SRS Cash Smart account as well. This is similar to the Stashaway Simple account where you can grow your SRS money at a much faster pace as compared to the standard 0.05% interest.
Compared to StashAway Simple
The biggest competitor to this product would be the StashAway Simple cash management product offered by fellow robo-advisor StashAway. There are many similarities between the product offered by both companies.
They both offer a projected return of about 1%~2%. Both invests in very low risk money market funds with the possibility of losing principle and allows for the usage of SRS funds to invest. Most importantly, both of them allows for very flexible withdrawals with no lock in periods.
The biggest difference between the two will be the underlying funds of the investment. StashAway Simple invests 50% in a money market fund and 50% in a bond fund. You do not have the option of choosing a lower risk investment of 100% money market funds. I believe StashAway gave this option only to increase the potential yield of their product. In any case, I feel that most customers will choose the Enhanced option for Endowus Cash Smart anyway.
Should I use this product?
In my opinion, if you’re considering between StashAway Simple and Endowus Cash Smart, then you should choose the broker that you’re already using. I see a big use case for these cash management solutions is to temporarily park your going-to-invest monies.
An example would be the end of year top up of SRS funds. Once you’ve topped up the funds to fulfil your tax deduction criteria, you might not want to immediately invest all of them at one go. Instead, you’d prefer to dollar cost average into the broker’s other investment funds.
Another use case would be for people who have too much cash and maxed out most of the other products out there. As there is no cap to the amount of money you can top up, this might be a good alternative to park your excess cash. Though I personally don’t think having such a large amount of cash on hand is a very good financial decision.
This is definitely a good step in the right direction for Endowus. As interest rates continue to be slashed and I expect them to fall even more in the coming months, more people will be looking for safe alternatives for their money. I believe that by providing these options, it’ll spark more competition and ultimately only benefit us as the customers.