Thursday, July 21, 2016

Interest rates and you – how to make your money work harder

Most Singaporeans earn a measly 0.05% on their savings, while the inflation rate and cost of living continues to climb. If you’re not satisfied with your bank’s low interest rates, you’re not alone. Here are some other alternatives that can provide you with much higher returns.

Fixed Deposits (FDs)
FDs are quite popular among Singaporeans due to the attractive rates offered by the banks over a short holding period. For instance, if you commit $20,000 for a lock-up period of 2 years on a FD, a bank will likely pay you a much higher return. For example, some banks may pay promotional interest rates of above 1% p.a., which is at least 20 times higher than the current 0.05% p.a. bank interest rate.

Endowment Funds
Offered by many insurance companies, endowment funds have traditionally been used by parents to save for their child’s university education. The average rate of return is about 2-4% p.a. among the different plans, with some insurers providing a certain guaranteed amount regardless of the market’s performance. The catch is that your money is typically locked up over an extended period (like 15 years or longer) and there will be a penalty if you wish to terminate the plan before its maturity.

The Singapore Saving Bonds (SSB)
If you have a low appetite for risk, government bonds offer a secure alternative for you to park your cash in, while earning interest higher than your bank rate. For instance, if you had put aside $20,000 in the February 2016 SSB placement and did nothing for 10 years, you’ll be rewarded with a generous $5,124 of interest by the end of that decade. Simply put, that’s a whopping 25% return!

Exchange-Traded Funds (ETFs)
For those wanting to get in on the stock market action, there’s a no-brainer method of putting your money into a stock market index, usually known as ETFs. These are broad, diversified indexes that track market returns, typically comprising the largest companies on the market, or a series of companies within a certain industry. In Singapore, the STI ETF is a popular option, which can give you between somewhere 5% to 8% in returns over the long haul. 

If you're willing to work a little harder by doing some research, investing in equities or stocks can be quite rewarding when you invest in companies that grow and flourish over time. For instance, if you had bought shares of Google during its IPO in 2004, you would have made a total of 1,081% in returns today (as of June 2016)! Of course there are also other stocks that can crash and you don’t get anything back. Finding the right stocks and diversifying into different stocks will help to reduce the risk to your stock portfolio.

As you can see, there are plenty of other financial instruments available in the market, which can offer you more bang for your buck (or in this case, more returns on your money). The only question is, which tool will be more suitable for your needs and risk appetite?

About the Author:

Budget Babe is Singapore’s top female financial blogger, who enjoys sharing what she knows on personal finance, savings, insurance, investments, and other issues close to the Singaporean core. Having been featured on various media interviews including The Straits Times, Her World and 938 Live, her blog continues to inspire both men and women alike. 


If you wish to request for an non-obligation and free financial assessment, do contact me (Jacky Goh) at +65 9151 9924 for an appointment. I will be glad to provide you with my services as AXA financial planner.