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In tandem with the rise of global interest rates since 2022, Government Treasury Bills (T-bills) became popular investments in Singapore. T-bills interest rates soared from the 0.5%-level to over 4.0%.
Many retail investors jumped on the bandwagon, enjoying the attractive risk-free return on their savings. This is unlikely to continue, though, with global interest rates at a pivot point today.
For the first time in over 4.5 years, in September 2024, the US Federal Reserve (Fed) cut interest rates by 0.5%-points. In November 2024, there was another 0.25%-point rate cut to the 4.5% – 4.75% level.
With more rate cuts on the horizon, interest rates offered by T-bills should similarly taper.
Investors May Want To Consider Other Solutions With More Attractive Interest Rates
In the chart below, we can see how the 6-month T-bills rate in Singapore tracks the rise and fall of the US interest rate quite closely, although not exactly.
Between March 2022 to July 2023, as the Fed raised interest rates at an unprecedented pace, Singapore T-bills interest rates spiked sharply.
From July 2023 to September 2024, when the Fed held rates steady for over a year, T-bills interest rates stayed range-bound at 3.5% to slightly over 4%.
Even before the rate cut happened in September 2024, the market was already anticipating it – and interest rates were gradually dipping as early as July 2024. At the latest 6-month T-bills auction on 27 November 2024, T-bills had a cut-off yield of 3.08% p.a.
Singapore Government T-bills Interest Rate
With the Feds forecasting further cuts, Singapore Government T-bill interest rates may further dampen.
Investors in Singapore with excess cash may want to consider other solutions to grow their money.
While hunting for attractive interest rates, it is crucial to stay aligned with our financial goals. We can consider taking on some risks with our surplus cash, provided it supports these goals.
Here are 3 solutions that don’t only pay out stable distributions, but also offer relatively attractive interest rates.
#1 High Interest Savings Accounts
Most of us should already have a high interest savings account with one of the local banks in Singapore – and we should make the most of it. These attractive interest rates help diverse customer groups, including working adults, NSFs, gig workers, retirees and others, to earn a decent return on liquid savings.
For example, the DBS / POSB Multiplier Account offers bonus interest of up to 4.1% p.a. for the first $100,000 in savings when we credit our income and transact in at least 3 categories.
Source: DBS / POSB Multiplier Account
Even if we cannot hit a total eligible transactions of $30,000 per month to earn the highest interest rate tier, we can relatively easily earn at least 2.4% p.a. by hitting just $500 in eligible transactions a month.
Read Also: DBS / POSB Multiplier Account: Earn Higher Interest As You Make Better Financial Decisions
#2 Singapore Savings Bonds (SSB)
Given the downward trajectory of interest rates, the SSB helps us to lock in an interest rate schedule for the next 10 years, while providing relatively decent liquidity.
At the same time, if interest rates stay elevated, we retain the flexibility of selling/redeeming our SSB and reinvesting at higher rates if we are able to.
For example, we can see the latest December SSB issue offers a first year interest rate of 2.66%, and an average return of 2.81% p.a. over 10 years.
For those who invested in the November SSB issue, this is a slightly higher rate than what they got. If interest rates remain at this level, there’s an option to sell the SSB, receive your proceeds by the 2nd business day of the following month, and reinvest in the next SSB issue at a higher rate.
By investing in SSBs, we have to understand that we are investing in a virtually risk-free product similar to the T-bills. The only difference is that we get a slightly longer visibility of interest rates.
#3 Short Term Fixed Income Solutions
To continue earning attractive rates, we can invest our excess cash in short-term fixed income portfolio. Besides providing a low-risk fixed income portfolio, we also get to enjoy liquidity with such investments.
This gives us the flexibility to continue earning a decent interest return on funds we may have earmarked for investments when future opportunities arise. It’s relatively easy to divest this portfolio and they usually come without fees and charges.
This strategy can be useful with downside uncertainties in investment landscape, especially with lingering geopolitical and trade tensions, in an increasingly fragmented world.
One such investment is DBS SaveUp Portfolio – which we can make under DBS digiPortfolio. According to its factsheet, this readymade portfolio carries a relatively low level of risk in fixed income assets diversified across well-known fund managers, including Allianz, Fullerton, Nikko AM and PIMCO.
We can start investing from as much or as little as $100 a month – while enjoying a portfolio yield of 4.79% (as at 30 Sep 2024).
Via the DBS digiPortfolio umbrella, we can also invest in other managed portfolios, which are focused on other objectives such as growth, income or retirement.
Clicking first into the “Invest” tab (on the bottom of the screen), and then the “digiPortfolio” option at the top left, we can access the managed portfolios that are offered. The SaveUp Portfolio is the “High-quality short duration bonds” solution.
Read Also: Why The Glidepath Is Vital For Managing Risk In Retirement Portfolios
Source: Screengrabs from DBS digibank app
Alternatively, we can also invest in the DBS CIO+ Fund – which you may realise is part of the overall SaveUp portfolio. But, unlike investing in the readymade SaveUp portfolio, where returns flow back into the investment, we get a regular quarterly dividend payout from the DBS CIO+ Fund. As of 30 Sep 2024, the DBS CIO+ Fund pays quarterly dividend is 4.02% p.a., while it has delivered a portfolio yield of 4.66% p.a.
Tapping on the expertise of the DBS Chief Investment Office (CIO) and its team of experienced investment professionals, the DBS CIO+ Fund invests in a diversified mix of over 150 higher-quality corporate bonds and low-risk government bonds.
Similarly, we continue to enjoy high liquidity with daily redemptions and receiving our money in a matter of days.
For those of us who prefer to manage our own investments, we can invest in individual fixed income funds on our own.
While doing this may seemingly save us the 0.25% management fee and offer more choices, we should also note that DBS’ managed portfolios can help us access share classes not available to retail investors – and we may end up paying more in overall fund management fees. So, keep a lookout for overall costs rather than fixate on one type of cost.
Through the DBS digibank mobile app, we can start investing in a diverse range of funds, including some of the funds that the SaveUp Portfolio has exposure to.
For instance, we can search for the Nikko AM Shenton Short Term Bond Fund. This is ideal for those who want to invest in Short-Term Fixed Income with their CPF or SRS funds.
We simply need to click on the “Invest” tab on the bottom, and search for the fund name. In this case, we searched for the Nikko AM Shenton Short Term Bond Fund.
Source: Screengrabs from DBS digibank app
Information of the fund is also transparently displayed on the DBS digibank app, and we can assess the investment directly on it. We can see the fund’s performance over various timelines, as well as exposure to asset classes and geography.
Source: Screengrabs from DBS digibank app
Continue To Grow Your Surplus Cash, But Stay Alert To Investment Risks
We must continue to invest our liquid cash savings in line with our financial goals rather than be swayed by what’s happening in the interest rate environment.
Just because we may not be able to earn over 4% on the T-bills, doesn’t mean we should take on elevated levels of risk if we cannot afford to stomach the losses that may come with it.
If we can optimise our high interest savings accounts, the DBS / POSB Multiplier Account can offer even superior liquidity compared to T-bills.
Those who invest in the SaveUp Portfolio via DBS digiPortfolio or DBS CIO Liquid+ Fund can also continue to earn a relatively decent interest return. There are also solutions to invest our CPF or SRS funds into individual short-term fixed income funds. However, we must note that this comes with taking on a slightly higher level of risk compared to the virtually risk-free T-bills investment – and may result in losses.
Particularly applicable for those who wish to maximise interest rates on their DBS / POSB Multiplier Account, investments in the SaveUp Portfolio or individual income funds also count towards eligible transactions that can help up further maximise the interest returns we earn on our high interest savings account.
Investing and saving our money within the same banking ecosystem not only gives us a bird’s eye view of our financial well-being and allow us to manage our finances in one banking platform, but it can also pay (a better interest rate) to do so.
Disclaimers
Deposit Insurance Scheme
Singapore dollar deposits of non-bank depositors and monies and deposits denominated in Singapore dollars under the Supplementary Retirement Scheme are insured by the Singapore Deposit Insurance Corporation, for up to S$100,000 in aggregate per depositor per Scheme member by law. Monies and deposits denominated in Singapore dollars under the CPF Investment Scheme and CPF Retirement Sum Scheme are aggregated and separately insured up to S$100,000 for each depositor per Scheme member. Foreign currency deposits, dual currency investments, structured deposits and other investment products are not insured.
All investments come with risks and you can lose money on your investment.
This information is for general information only and should not be relied upon as financial advice. This publication may not be reproduced, or communicated to any other person without prior written permission.
This information does not take into account the specific investment objectives, financial situation or needs of any particular person. Before entering into any transaction involving any product mentioned in this publication, where applicable, you should seek advice from a financial adviser regarding its suitability for your own objectives and circumstances. If you choose not to do so, you should make an independent assessment and do your own due diligence on the product. This information does not constitute or form part of any offer, recommendation, invitation or solicitation to subscribe to or to enter into any transaction. It is not intended to provide, and should not be relied upon for accounting, legal or tax advice.
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