Low Capital Business In Singapore – Rising interest rates combined with an inflationary environment are driving investors to seek higher yields to preserve the value of their money. Higher inflation not only raises the cost of living, but money sitting idle in low-interest bank accounts also loses its value over time.
Alternative cash investments are generally low risk and offer a slightly higher interest rate than a regular bank savings account. However, returns are relatively lower than higher-risk investment products (such as stocks and funds) to grow your money more efficiently over the long term. Still, there is a place for cash alternative investments in everyone’s portfolio.
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For those looking to move their spare cash into cash alternative investments, there are 2 key factors to consider – 1) liquidity and 2) risk.
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You would want to make sure that the liquidity of the investment meets your needs in case you need to get quick access to your money for short-term needs. Since such investment options offer low levels of risk, returns on these investments are typically 2% to 3% per annum (pa).
How then can consumers make their money work harder by taking advantage of the higher returns offered by low-risk investment/cash alternative products right now?
Singapore is one of the few countries that has a Triple-A credit rating, indicating that the debt issued by the government is of a high level of creditworthiness and comes with a strong capacity to repay investors. The Singapore government issues short-term bonds called Treasury bills in both 6-month and 1-year maturities. These are the shortest-term Singapore Government Securities (SGS) available.
The 6-month Treasury bill issued on September 15, 2022 reached a high marginal yield of 3.32%, a significant increase from the previous Treasury bills issued on September 6, 2022 and August 23, 2022. , with marginal yields of 2.99% and 2.98% respectively. Unlike SSBs and SGS bonds, T-bills are zero-coupon bonds that pay no interest.
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Instead, T-bills are issued at a discount to their face value – the price of T-bills is less than the principal the investor receives at maturity. For example, if you invest S$10,000 in a 1-year Treasury, you will receive the “interest” at the beginning (S$299 discount based on 2.99% p.a.) and eventually get your S$10,000 back at maturity. Simply put, you only need to pay S$9,701 up front.
The minimum amount to invest in this product is $1000 with an administration fee of $2. Note that 1-year T-bills offer a higher yield than 6-month T-bills. Why? Because there is more risk in the security due to the increased tenure. Finally, T-bills are useful for investors who want to invest in a very short time frame – up to one year – without taking on a lot of risk.
Although you can sell Treasury bills in the secondary market, be aware that the price may rise or fall before maturity.
There are also longer-term bonds that fall under Singapore Government Securities (SGS) – ranging from 2 to 50 years. They pay according to a fixed semi-annual coupon – every 6 months – from the month of issue. SGS bonds pay regular interest payments (coupons) on the amount you invest at semi-annual intervals throughout the life of the bond.
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For example, if you had purchased S$10,000 worth of 50-year Green SGS bonds with a coupon rate of 3% per annum, you would receive S$300 in two interest payments of S$150 each year. These payments will be made semi-annually until the bond matures (in this case, 50 years – the longer you hold the bond, the more interest you will receive!).
If you decide to sell it in the secondary market, be aware that the price of the bond may rise or fall before maturity.
Singapore Savings Bonds (SSBs) are another safe and sound product offered to individuals by the government. The investment period is up to 10 years. Launched in October 2015, SSBs target retail investors who want higher interest than bank deposits but are wary of putting their hard-earned savings at risk.
The bonds pay compound interest each year until the 10th year. In other words, bonds have a lower yield earlier in their tenure, but pay a progressively higher interest rate, or coupon, until the bond’s maturity date. This means that the longer you save, the higher the return.
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With SSBs, bondholders are guaranteed to get their full principal back every month, without any loss of capital or penalty. This means that if you need to redeem your bonds before the 10-year maturity period, you will not be penalized for early cashing.
If you decide to exit the investment before the 10-year period, you will receive a lower average return per year. The easiest way to calculate your expected return on an SSB investment is to use the calculator on the My Savings Bonds portal. You’ll also be able to check how your returns vary with early redemptions.
The minimum investment for this particular security is $500 and the maximum individual holding is $200,000. There is also a $2 transaction fee for buying and exiting this product.
A fixed deposit account pays a fixed rate of interest on a lump sum of money over a specified period. FDs earn higher interest than leaving money in your savings account.
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Many banks offer FD schemes at promotional rates. With interest rates on the rise, local banks are offering attractive FD rates of around 3% per annum for a 12-month term.
Note that FDs allow instant withdrawals, but premature withdrawals usually incur a charge and may result in ineligibility for accrued interest. currently offering an 8-month fixed deposit at 2.6% p.a. (minimum S$20,000 with a cap of S$1 million). This is a promotional price by invitation only.
Deposits in full banks and finance companies in Singapore are covered by the Singapore Deposit Insurance Scheme (SDIC). SDIC insures your deposits in banks, finance companies and insurance policies with insurance companies. Under the SDIC, your bank deposits are insured up to $75,000.
With a higher interest savings account, you can potentially enjoy higher interest rates if you meet certain criteria. For example, the multiplier account offers up to 4.1% interest per year when the account holder credits his salary to the account, meets minimum credit card expenses, has regular expenses for an insurance policy or investments and/or has a home loan with .
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The amount of interest you earn also depends on the total amount of the transaction you made with the bank. If used wisely, you may be able to earn significant interest annually on your savings alone!
Insurance savings plans are offered by insurers and can be sold through banking channels. They may seem similar to fixed deposits in that you are required to lock in your money for a set period, but the principal amount may not be protected if you decide to drop the policy prematurely. the money will be invested in savings and investment funds. A typical savings plan is Manulife SmartWealth (II), which invests in funds of your choice and has a policy duration of 3, 5 or 10 years. Also, insurance savings plans can offer a lump sum death benefit if something untoward happens to you.
For a bank savings plan (which is not linked to insurance), you can consider a POSB SAYE account. There is a fixed deposit feature for the first 2 years that can generate 2% annual interest on your savings.
For savings plans, users should consider the lock-in period, early withdrawal penalties, fees involved and whether principal and returns are guaranteed.
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Cash management accounts are typically offered by brokerage firms—these accounts invest in cash, money market funds (MMFs), and short-term bond funds.
The net yield is between 1.5% and 3.5% and returns are projected and not guaranteed. These accounts provide liquidity and are generally low risk. However, they are not supported by the Singapore government or SDIC.
Money market funds invest in stable, highly liquid, short-term instruments, including cash equivalent investments, Treasury bills and bonds that are close to maturity.
The safety-first feature makes money market funds and short-term funds an option for those looking to earn some return on their excess funds. However, they are still mutual funds, so although they are generally considered safer instruments, your capital is not guaranteed.
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Short-term funds come with slightly more risk than money market funds, and investors can expect slightly higher potential returns than money market funds.
The above investment options can provide you relatively safe and reliable returns. Nevertheless, it is important to carry out due diligence before investing in any investment product, including seemingly low-risk instruments, as these have an impact on whether your principal is protected. Remember to always weigh the consequences before investing in any product.
It’s important to understand that diversification is key, so don’t put all your eggs in one basket or simply invest your savings entirely in cash alternatives. To mitigate inflation and longevity risks, spread yours
