You will be able to predict which of your savings rates respond quickly to a rate change and which lag.
Grace looks after the savings side of the household. When rates started falling a while back, she noticed something odd. The yield on the six-month Singapore Government T-bills she sometimes bought dropped almost immediately. The fixed deposit promotions at her bank came down a few weeks later. And the rate on her everyday savings account did not seem to change at all for months. Same economy, same direction of rates, three very different speeds.
Knowing those speeds lets you predict what will happen to your savings income when rates move, and decide where to keep money that you may want to lock in or keep short.
Singapore Government T-bills are short-term loans you make to the government, usually for six months or a year. They are sold at auctions on a schedule MAS publishes. You put in an application through a bank, and the auction sets a cut-off yield: the rate that every successful applicant receives for that issue.
Because each auction is a fresh price set by bidders, T-bill yields react to rate expectations almost at once. If markets come to expect lower US rates, as you saw in lesson 2.1, Why Singapore interest rates follow the US Fed, bidders at the next auction will accept a lower yield, and the cut-off falls with them. Nobody has to decide to change anything. The market does it on the day.
Once you hold a T-bill, though, your yield is fixed until it matures. The speed applies to new money going in, not to the bill you already hold.
Banks set fixed deposit rates themselves. They look at market rates, but they also look at their own needs. A bank that wants more deposits, for example because loan demand is strong, may offer a generous promotion for a particular tenor. A bank with more deposits than it can lend may cut its offers quickly or stop promoting them.
So fixed deposit promotions follow market rates, but with a delay and with gaps between banks. That is why you will sometimes see one bank still offering a high rate weeks after others have cut, or a promotion that applies only to fresh funds or to a specific term. Read the conditions every time.
As with a T-bill, once you place the deposit the rate is fixed until maturity.
The base rate on an everyday savings account barely moves with the market. It is typically low and changes rarely. The bonus rates on accounts that reward you for crediting your salary or spending on a card are a different matter. In lesson 1.2 of How money works, How a bank earns the interest it pays you, you saw how those bonuses stack on a capped balance. Banks change those bonus rates as a business decision, usually with notice to customers, and they tend to do it some time after market rates have moved.
So a savings account is the last place a rate change shows up, and when it does, it may arrive as a letter about revised bonus tiers.
Because fixed deposits and T-bills fix the rate until maturity, the length you choose is a bet on the direction of rates, whether you meant it as one or not.
Here is an example with made-up rates. Grace has S$20,000 to place. A 12-month fixed deposit pays 3.0% a year. Six months later, rates on new deposits have fallen to 2.0%.
If she locked in for 12 months, she earns S$20,000 x 3.0%, which is S$600 for the year.
If she had chosen a six-month deposit at the same 3.0% and rolled it over at 2.0%, she earns S$300 for the first half and S$200 for the second, which is S$500.
Locking in kept the old rate, and that was worth S$100 here. If rates had risen instead of falling, the result would have flipped: the six-month deposit would have rolled into a higher rate, and the 12-month deposit would have left her stuck at the lower one.
That gives a simple rule. When rates are expected to fall, locking in for longer keeps today's rate. When rates are expected to rise, staying short lets you catch higher rates sooner. The trouble is that expectations are often wrong, and by the time a change is widely expected, as lesson 2.1 explained, T-bill yields and new fixed deposit offers have usually priced it in already. Many people simply split their savings across a few maturities, so some money is always coming due.
Keep one more thing in mind: money that may be needed at short notice, such as your emergency fund from lesson 3.1 of The Singapore personal finance system, How big your emergency fund should be, should not be locked up just to chase a slightly better rate.
When Grace sorted the household's accounts by speed, it took her ten minutes. Most of their savings sat in fixed deposits and a bonus account, and she could see that a rate cut would barely touch their interest income until the following year. Your own mix will give you a different answer, and the only way to get it is to list where the money actually sits.
List every interest-earning place you hold money and mark whether its rate would change within a month, within a year, or only at maturity.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).