What to do with that cash

Consider bank accounts and fixed deposits that offer higher interest rates, and the upcoming Singapore Savings Bonds


When we talk about investments, the conversation is likely to revolve around asset classes such as equities, bonds, unit trusts, real estate investment trusts, insurance and property.

Most retail investors would be familiar with the various options for placing their cash.

After all, in our bid to chase potential capital gains, we constantly look out for suitable investment deals in instruments such as these where we can park our surplus savings for a certain period of time.

It is less exciting to talk about where we place our emergency cash, cash and fixed deposits.

And it doesn't help that for the longest time, bank rates have been at rock-bottom levels.


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But if we have kept our eyes open and believed in stretching every dollar, including cash in banking operating accounts, we would have come across products such as CIMB StarSaver, DBS Multiplier and OCBC 360 accounts.

These accounts offer rates well above standard levels if you comply with the conditions of the accounts, such as maintaining an increasing balance or using them to credit your pay.

We would also have noticed the emergence recently of higher fixed deposit rates offered by banks such as Bank of China, CIMB, HSBC, Maybank and UOB.

For instance, CIMB is offering a 1.8 per cent annual rate for 12-month deposits of at least $100,000. For minimum deposits of $20,000, UOB currently offers interest rates of 1.45 per cent per annum for 13-month fixed deposits.

To give you an idea of these offerings, the rate for non-fixed deposits offered by the OCBC 360 account, at 3.25 per cent per year and more if certain conditions are met, is among the highest by banks here.

But do bear in mind that conditions include buying eligible financial products such as endowment plans so do not be pressured into buying something you wouldn't need just to achieve higher rates for the account.

The 360 account's additional interest rates are applicable for amounts up to $60,000.

DBS' Multiplier account offers rates of 1.08 to 2.08 per cent on the first $50,000 savings, which can comprise cash flows from any combination of salary credit, credit card spend, investment dividends or mortgage instalments. Both DBS and OCBC encourage customers to credit their pay into their respective accounts.

The CIMB StarSaver account is the simplest to understand because it offers one annual rate, 0.8 per cent, for cash balances up to $750,000. CIMB customers like me who set up their StarSaver accounts before Sept 1, 2010 enjoy a higher rate of 0.9 per cent on their savings.

In the general scheme of things, the yields generated by these accounts and fixed deposits appear small but they are not to be sniffed at. And if we are disciplined with investing our surplus, we can extend this effort to our operating monies too. For the record, besides the CIMB StarSaver, I also own an OCBC 360 and a DBS Multiplier account.

What these products have in common is that they fall at the lower end of the risk spectrum for cash investments. And the good news is that this space is set to become more exciting in the coming months.

With the upcoming maiden issue of the Singapore Savings Bonds in October, we will have another flexible and simple investment option. Moreover, the Savings Bonds are guaranteed by the Government, which makes them effectively risk-free. The minimum entry level is a low $500, and investors can invest up to $50,000 in an issue and hold up to $100,000 of the bonds at a time.

One key attraction is that we can redeem these bonds - partially or fully in multiples of $500 - in any month, with accrued interest and without any penalty, other than the $2 non-refundable transaction fee for each application and redemption request.

This means we are not locked in to the 10-year maturity term of the Savings Bonds, which makes this a very flexible investment option.

Of course, if you decide to redeem your bonds early, the average interest per year will be lower than that of the 10-year yield. The latter will match the average 10-year Singapore Government Securities yield of between 2 per cent and 3 per cent.

Does that mean there ought to be a place for the Savings Bonds in all our portfolios? Like all investment products and services, it depends on your financial situation.

Take my family as an example.

For conservative and risk-averse retail investors who have all or most of their savings sitting idle in a bank account, investing in these bonds would be better than not doing anything with the cash.

My other half fits this description perfectly so I would strongly recommend the bonds to him. If he invests in these bonds, he can continue to sleep well at night and still find them an attractive option as they are principal-guaranteed - by the Government, no less.

Importantly, he can look forward to earning more interest than the current miserable savings account interest rate of 0.05 per cent a year.

If he continues to do nothing, his cash is in danger of being eroded by inflation. By notching up the likely rate of 2 per cent to 3 per cent a year, the Savings Bonds would help him to maintain his purchasing power, even though the interest may not be sufficient to hedge against inflation entirely - depending on the direction inflation takes.

Still, I would hesitate to place the savings of my two children in the Savings Bonds. This is because they are in their early 20s, have a long investment horizon and should be encouraged to take on more risk in other instruments such as equities to reap higher returns. Clearly, these bonds are not meant to grow our money in a big way.

And for savings that my children may require in a year or two, they would be better served by current promotional fixed deposits offering more attractive rates.

Several years ago, I helped to invest my parents' savings in some "perpetual" banking stocks which provide annual yields of about 4.5 per cent to 5 per cent.

As I believe the credit risks of these stocks are low, I would advise them to continue with their current investments.

But they could consider putting surplus cash, available for investing for a longer duration, in the Savings Bonds to stretch their dollar after setting aside their emergency cash reserves.

Interest on the Savings Bonds is paid half-yearly and is on a step-up basis so the longer they can hold onto the bonds, the higher the interest would be.

As for myself, I would move some savings, now in the CIMB StarSaver account earning 0.9 per cent a year, to the Savings Bonds which offer higher interest.

To get the full benefit, I would work out the amount that I would not need for the next decade. I take comfort in the fact that there is no early exit penalty if and when the need arises to redeem my bonds.

As in most things in life, having more options is good when you know what to do with them.

A version of this article appeared in the print edition of The Sunday Times on August 02, 2015, with the headline 'What to do with that cash'. Subscribe