Compare the main cash-like options on return, access and what can go wrong with each.
Money you need in a year or two is hard to place well. It is too soon to put into investments that can fall in value, and an everyday account usually pays very little on it. Singapore has four common places for this kind of money: savings accounts, fixed deposits, Treasury bills and Singapore Savings Bonds. All four are reasonable choices for money needed in a year or two. They differ in what they pay, how you get the money back, and what can go wrong.
To compare them, ask three questions of each: what it pays today, how quickly you can get the money out, and what you would lose if you needed it early. No current rates are given here, because rates on all four change, sometimes month to month. You'll look up today's figures yourself in the activity.
Mei has S$15,000 set aside for the wedding (an example figure), sitting in the same savings account as Mei's salary. Mei's sister swears by Singapore Savings Bonds. The bank's app keeps offering a fixed deposit promotion. A colleague keeps telling Daniel to "just buy T-bills". Each suggestion points to a different option, and each option answers the three questions differently.
A savings account lets you take your money out on the same day, at any time. For a goal whose deposits fall due on dates you don't fully control, such as wedding vendor payments, this matters most. Read the rate carefully. Many accounts pay a base rate, which is low, on the whole balance, and a higher bonus rate only if you meet conditions. Common conditions are crediting your salary to the account, spending a set amount on the bank's card, or holding insurance or investments with the bank. The bonus rate often applies to only part of the balance. How money works lesson 1.2, "How a bank earns the interest it pays you", worked through one such offer, where an account advertised at over 3% paid closer to 1.5% on the balance in the example.
Singapore dollar deposits at member banks are covered by deposit insurance up to a limit set by the scheme. The Singapore personal finance system lesson 3.2, "Where to keep it: safe, liquid and separate", explained how this works. Check the current limit on sdic.org.sg. A savings account gives you the best access of the four, and its rate is low unless you meet the bonus conditions.
A fixed deposit pays a set rate for a set term, often a few months to a year or two, so you know at the start what you will have at the end. Put S$10,000 in for 12 months at 2.5% and you get S$250 interest at maturity (a made-up example). You give up access in return. Banks usually let you withdraw early, but you lose some or all of the interest. If you broke that deposit in month nine, you might get back some of the S$250 or none of it, depending on the bank's terms. Read the early withdrawal terms before you place the deposit, while you can still pick a different bank or product. A fixed deposit works well for a payment with a known date: choose a term that ends just before it. Singapore dollar fixed deposits at member banks have the same deposit insurance as savings accounts. You get a known rate, and you pay a penalty if you leave early.
Treasury bills (T-bills) are short-term Singapore government securities with terms of up to a year. MAS (the Monetary Authority of Singapore) issues them for the government through auctions on a published calendar. A T-bill pays no interest during its term. You pay less than its face value at the start and receive the full face value, the amount the bill pays back, at maturity. Your return is the gap between the two. If you pay S$9,800 for a S$10,000 one-year bill, you earn S$200, about 2.04% on the amount you paid (made-up figures). The price is set at the auction, so you only learn your exact return after you have applied.
Most people apply through a bank using cash. You can also use SRS money, and CPF savings under some conditions. Check the current application methods, minimum amounts and auction calendar on the MAS website. The risk with a T-bill is mostly about timing: you cannot hand it back to MAS early. If you need the money before maturity, you have to sell the bill to someone else at whatever price they offer. Use T-bills only for money you are sure you won't need until after the maturity date, and plan your purchases around the auction dates.
Singapore Savings Bonds (SSBs) are also issued by the government but work differently. They run for up to ten years, and the interest steps up the longer you hold them, which makes the yearly return over the full term higher than the return over the first year. MAS publishes the rates for each issue before you apply. A new issue comes out every month with its own rates, so your rate depends on when you buy.
For a goal, what matters about SSBs is access. According to MAS, you can redeem in any month without penalty and get back your money plus the interest earned so far. You apply to redeem during one month and the money arrives early the following month; the timetable is on the MAS website. Each person can hold only up to a set limit, and banks charge a small fee for each application and each redemption. Look up the holding limit and the fees on the MAS website before you plan around them. SSBs let you take money out in any month without a penalty, but you wait some weeks for it and can only hold up to the cap.
No single option suits every goal, and many people use two or three, each for a different goal. Run each option through the three questions, then make these checks:
Savings account: the base rate, the bonus conditions, and how much of the balance the bonus rate covers. Fixed deposit: the early withdrawal terms, read before you place it, and a term ending just before your payment date. T-bill: only money you won't need until after maturity, with purchases timed to the auction calendar. SSB: the issue's rates, the redemption timetable, the holding limit and the fees, all on the MAS website.
For the activity, you'll need the current figures: open your bank's rates page and the MAS pages for T-bills and Singapore Savings Bonds, and keep them side by side.
Using bank and MAS pages, make a table of the four options showing the current rate, how to buy, how to take money out and the main risk.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).