We often face many dilemmas when it comes to making a decision about our personal finance. One of the greatest…
Saving is a key aspect of any financial planning. But have you ever wondered where is the best place to keep your savings? For most people, to protect your hard earn cash, putting your savings in the bank is the natural to do. But are there any other principal guaranteed savings tool?
Well, it turns out that putting your money in a savings account with the bank is the least ideal choice. You may likely earn much less than 0.5% p.a. on your principal. If that’s the case, then where should you be saving your money? Here are three places which we think you should consider putting your money in to improve the return on your savings.
When you think about saving, the most traditional method for saving is to put your money in fixed deposits. Fixed deposit works in a very simple fashion. You pledge to put $x (e.g. $10,000) into the fixed deposit for a pre-determined period of time (e.g. 6 months). In return, the bank gives you y% (e.g. 0.5%) as interest for putting money with the bank. For that period of time, your money will be locked in the bank.
There are two ways for you to increase your savings through a fixed deposit. One way is to keep the fixed deposit for a longer period of time. The longer you keep your money locked with the bank, the more interest the bank will offer to you. The other way is to keep a larger sum in the fixed deposit. The more you pledge to keep in the fixed deposit, the better the interest rate the bank will offer to you.
Indicative Returns On Savings: 1.4% @ (6 months) or 2% @ (24 months)
While you have the option of withdrawing your money from the fixed deposit any time, it is seldom beneficial for you. If you choose to withdraw your money from the fixed deposit, it is likely you will lose most of the interest that you are slated to earn.
Check out 4 Things Financially Savvy Singaporeans Always Do Without Fail.
Singapore Savings Bonds are bonds issued by Monetary Authority of Singapore (MAS), Singapore’s central bank, and guaranteed by the Singapore government. Technically, it’s backed by the Singapore Government so most investor regards it as a risk free investment with principal highly likely intact. The Singapore Government Bond offers a superior interest rate compared to the typical savings account you have with the bank.
In the first 3 years, you can expect 1.6%-1.7% of interest rate from the bond. If you hold it longer, there is a step-up interest rate element where the interest rate increases every year.
| Year from issue date | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
| Interest % | 1.64 | 1.64 | 1.64 | 1.71 | 1.76 | 1.76 | 1.80 | 1.84 | 1.88 | 1.91 |
| Average return per year %* | 1.64 | 1.64 | 1.64 | 1.66 | 1.68 | 1.69 | 1.71 | 1.72 | 1.74 | 1.75 |
Source: MAS
The average inflation rate in Singapore is around 1.9%. However, the Singapore Savings Bonds’ interest rate (1.64% in September 2019) barely beat the inflation rate. Even if you were to hold onto the Singapore Savings Bonds for 10 years, your average return per year is only 1.75%.
To apply for Singapore Savings Bonds, all you need to do it via ATM or through iBanking from a DBS, UOB or OCBC account. You can choose to invest in multiples of $500. The application for Singapore Savings Bonds opens on the first business day of the month and closes on the fourth last business day of the month.
An endowment plan is a savings plan that provides both guaranteed and non-guaranteed returns on your capital. With an endowment plan, you can either choose to put a lump sum payment at the start or continue to pay premiums for a selected number of years. You can also choose the maturity period of your endowment plan, ranging from 3 years to a lifetime.
Besides providing a return on your capital, endowment plan also comes with an added insurance element. You will get coverage for death and total and/or permanent disability (TPD) while your endowment plan is in effect.
Read: Best 3 Lifetime Endowment Savings Plan That Can Be Passed on To the Next Generation
For short-term endowment plan (3 years) with guaranteed returns, the yield ranges from 2.18% to 2.3%. For longer term endowment plan, you can expect up to 4% per annum average return.
Similar to fixed deposits, you get penalized for early withdrawal of an endowment plan. In some scenarios (e.g. withdrawing in the first year), you might even lose some of your original capital.
To apply for an endowment plan, let us help you get you the best plans in the market. Just answer 3 questions below and a licensed financial planner will draft you a few proposals for your consideration
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