Tell which of your savings rates will react quickly to a rate change and which will lag.
Open your banking app, and any statements you have for T-bills or fixed deposits, and write down every place your savings sit right now. Next to each one, note the interest rate and whether it is fixed until a maturity date. When interest rates move, T-bills, fixed deposits and savings accounts respond to the same move at three very different speeds, and that list tells you how much of your interest income will change, and when.
Grace looks after the savings side of her household. When rates started falling a while back, she noticed that the yield on the six-month Singapore Government T-bills she sometimes bought dropped almost immediately. Her bank's fixed deposit promotions came down a few weeks later. The rate on her everyday savings account did not seem to change for months. T-bills move fastest, fixed deposit promotions next, and savings accounts slowest, and the reasons come from how each rate is set.
Singapore Government T-bills are short-term loans to the government, usually for six months or a year. They are sold at auctions on a schedule published by MAS, and as an individual you apply through a bank. Each auction sets a cut-off yield, and every successful applicant receives that rate for that issue.
Because each auction is a fresh price set by bidders, T-bill yields react to rate expectations almost immediately. If markets expect lower US rates, bidders at the next auction accept a lower yield and the cut-off yield falls. No one has to decide to change anything; the market does it on the day. Lesson 2.1, "Why Singapore interest rates follow the US Fed", explains why expected lower US rates lower the bids.
The speed applies to new money only. Once you hold a T-bill, its yield is fixed until maturity, so a lower cut-off at the next auction does not change the bill you already own.
Banks set their own fixed deposit rates. They look at market rates, and 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.
As a result, fixed deposit promotions follow market rates with a delay and with gaps between banks. One bank may still offer a high rate weeks after others have cut. Some promotions apply only to fresh funds or to a specific term, so read the conditions every time. Once you place a fixed deposit, its rate is fixed until maturity, the same as with a T-bill.
The base rate on an everyday savings account barely moves with the market. It is typically low and changes rarely. Bonus rates, which you earn for crediting your salary or spending on a card, stack on a capped balance; lesson 1.2 of How money works, "How a bank earns the interest it pays you", covers how that works. Banks change those bonus rates as a business decision, usually with notice to customers, and tend to do so some time after market rates have moved. A savings account is the last place a rate change shows up, and 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 intend it or not. Locking in means choosing a longer term to keep today's rate. Staying short means choosing a shorter term so you roll into new rates sooner. 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.
Say Grace has S$20,000 to place, and a 12-month fixed deposit pays 3.0% a year. Six months later, new deposits pay 2.0%. These are made-up rates. If she locks in for 12 months, she earns S$20,000 x 3.0% = S$600 for the year. If she takes a six-month deposit at 3.0% and rolls it over at 2.0%, she earns S$300 in the first half and S$200 in the second, S$500 in total. Locking in was worth S$100.
That result depended on rates falling as expected, and expectations are often wrong. By the time a rate change is widely expected, T-bill yields and new fixed deposit offers have usually already priced it in, as lesson 2.1 explained. Many people handle this by splitting their savings across several maturities, so some money is always coming due and can be placed at whatever the rate is at that point.
Money you may need at short notice should not be locked up to chase a slightly better rate. That includes your emergency fund, which lesson 3.1 of The Singapore personal finance system, "How big your emergency fund should be", helps you size.
Grace sorted her household's accounts by speed in ten minutes. Most of their savings were in fixed deposits and a bonus account, so a rate cut would barely affect their interest income until the following year.
To do the same for your household:
List where your money actually sits: T-bills, fixed deposits, savings and bonus accounts. Sort each holding by how fast its rate responds to market moves, with T-bills first and savings accounts last. Mark which rates are fixed until maturity, and the date each one matures. From that, predict how a rate change would affect your interest income, and in which month you would first see it.
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 place you hold money that earns interest. Next to each, 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).