Fixed Deposit Vs Savings Account – 2020 was an interesting year as we saw the launch of money management products in response to consumer complaints about cuts in bank interest rates, which have fallen further.
High-yield bank savings accounts used to be a good answer for risk-averse people who simply wanted an inflationary return without investing their money. I encourage readers to park their income and savings in an account as the first step in their financial journey and I have even reviewed several bank accounts that have given you between 2%, 3% and even 4% on this blog. Unfortunately, many of these bank accounts have also reduced their rates accordingly since mid-2020.
Fixed Deposit Vs Savings Account
Then came Singapore Savings Bonds in 2015, which also offered rates of up to 1.98% (1 year) to 2.2% (10 year) p.a. interest rate in its February 2019 phase. However, it also started to decrease significantly from May 2020, with the last issue being only 0.27% (1 year) to 1.64% (10 year) p.a.
Savings Concept Icon. Fixed Deposit Idea Thin Line Illustration. Creating Investment Account Stock Vector
Even fixed deposits are less than 1% less than 1% with a lock-in period of 12 – 18 months.
Due to global interest rates falling, domestic interest rates through our banks also cannot increase soon.
Perhaps this is why many have flocked to short term insurance plans at 1% – 2+% p.a. as another option in recent years, with a lock-in period of anywhere between 1 – 3 years.
It is important to know where to park your money so that inflation does not destroy your money over time.
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Note: The table below shows rates as of January 2021 and is no longer valid. I’ll leave it in this post as a reminder of how interest rates can change in a tough economic market.
Enter cash management products, a new hybrid introduced in 2020 that has proven to be an alternative for people looking for high returns on their money with low risk. The returns offered by various investment service providers and robo-advisors range from 0.25% to 1.4% p.a. it looked interesting without the parentheses.
Generally, your money is invested in mutual funds, money market funds (MMFs) or even short-term bond funds. These include instruments such as fixed deposits, treasury bills or even institutional bonds.
Please note that these are investment products and NOT a bank savings account, your deposits are NOT covered by SDIC. If you want that level of protection, it’s best to stick with local bank accounts (with lower and lower rates).
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I checked the interest rate on a high yield bank savings account I’ve had for over 6 years and the results were disappointing.
I expected to get more this year, but with the announced reduction in interest rates, the reality turned out to be completely different.
So, it no longer made sense to keep our emergency funds in banks and I started moving a few months ago.
If this also sounds like you and you are looking for a higher rate than a bank / SSB / fixed deposit can offer you without tying up your money, then Syfe Cash+ could be a good option for you.
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(6 April 2021: With interest rates and short-term bond yields remaining low in the coming months, Syfe’s expected yield has been revised down to 1.5%).
Among all money management accounts currently available, Syfe Cash+ has (i) the highest expected return of 1.75% 1.5% and (ii) no minimum deposit requirements.
I won’t go into detail at this time about other money management options available in Singapore (perhaps in another post), but they generally range from 0.25% to 1.4% p.a. and different deposit requirements.
For those of you who want to know where your money is parked to get those returns, this is how they are analyzed:
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You can read more about these 3 funds here (and more detailed information here including fees for each fund level, total time limit, maximum withdrawal, etc.).
Unlike savings accounts and fixed deposits that offer monthly or quarterly interest payments, Syfe Cash + offers daily income loading, i.e. you can watch your savings grow in value every day as income is automatically added to your cash + portfolio value. If you keep your money there for a long time, that income will compound over time to make your money grow faster.
With no deposit or low balance, you can also make unlimited transfers and withdrawals – free of charge.
If you later want to transfer your Cash+ funds to Syfe’s investment portfolio to increase your income, you can easily do so at any time within the platform.
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Additionally, Syfe does not charge any fees to manage the Cash+ portfolio. For the purpose of this post, I contacted them to ask how they calculated the expected return of 1.75% 1.5% p.a. giving birth, and this is what she shared with me:
Your deposits are primarily invested in the Cash+ institutional share class, which has low fees and expenses. (This is also why Cash+ is cheaper than buying basic funds directly on your own!)
The general fund rate fee charged by LionGlobal is 0.35%, but when these funds are distributed by third parties, there is usually a discount. In this case, Syfe has decided to return to consumers any discounts they receive from LionGlobal.
Since Syfe also doesn’t charge users anything to use the system, this generally means that costs are reduced for users and therefore we can earn more for every dollar invested in Syfe Cash+.
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It’s been 3 months since Syfe launched this product, so let’s take a look at their performance to see if they really got the expected return:
While past performance is not indicative of future performance, it does provide a good gauge of whether Syfe’s sales projections are off the charts or a reasonable approximation of what consumers can expect. And even with the latest yield estimates, Syfe Cash+ is still the highest of all providers.
If you compare this to one of your existing high-yield bank savings accounts, the obvious difference is that your deposits in Syfe Cash+ are not protected by SDIC – as both are different product categories, the comparison is not fair.
But compared to any other tool that offers you low risk, no minimum deposit and no closing time, this is where Syfe Cash+ excels.
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And when you compare specifically in the cash management product category, there is currently no better option than Syfe Cash+.
For those who already use Syfe and are wondering how it compares to their other offerings, please note that because Cash+ returns include short-term debt instruments, the risk level is very low (the number you select for their Global ARI. , REIT+ version or Equity100).
In my opinion, this makes Syfe Cash+ a great place to park your emergency funds, as it gives you the confidence to withdraw your money whenever you need it without penalty.
I’m not sure about you, but as I mentioned in a recent blog post, I set aside 24 months of emergency money (living expenses) for our circumstances. It used to make sense to keep almost the entire amount in our high interest bank savings account, but not anymore.
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I will not mention here how big the fund is because we want to prevent more people from coming to us to borrow money, especially family members.
But the truth is that due to the size of the fund, we need more places to park it so that its value is not removed by inflation.
There is no limit to how much you can deposit in Cash+ as the implied rate is 1.75% p.a. applies to all deposits. If you want to learn more, go here for more information and how to open an account.
Disclosure: This post was written in collaboration with Syfe Cash+ to ensure accurate representation of their Cash+ product. As money management products are considered investments, be sure to understand that they are not protected by SDIC like your bank savings accounts and should not be treated as such.
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