27 Aug 2020

How to get higher yields when interest rates are low

Do any of these describe you?

▢ My children are going to school soon

▢ We’re going to upgrade to a new flat in 2-3 years’ time

▢ My parents are looking for somewhere to “park” their pension monies

If you’ve checked-off on one or more, you might be looking for somewhere safe to grow these cash in the meantime.

Thing is, in many parts of the world, yields on cash is only a bit above zero. That’s because of ultra-low interest rates. (If you hold on to cash, inflation will just whittle down its value and make it harder for you to earn it back with each passing day.)

Singapore is no exception. Here, the basic current and savings accounts have interest rates that are barely above zero. (Besides special bank-as-you-earn accounts such as the Multiplier Account.) Term deposits do a little better. But there is still a zero in front of most term deposit rates, except during special “promotions”.

And the pursuit of significantly higher returns usually takes you into riskier territory. How then can you get higher returns on your cash?

There are 3 things you can do.

3 ways to get higher yields on your cash

1. Open a deposit account that pays higher interest rate

For instance, the Multiplier Account allows you to earn higher interest when your eligible DBS/POSB transactions satisfy certain requirements.

Option 1. Income & Transactions in one or more of the following categories

Option 2. Income & PayLah! Retail Spend

Option 3. PayLah! Retail Spend (for those 29 years old and below with no eligible income)

Find out how Multiplying is easier for everyone now. And while you’re at it, check out these other money-multiplying tips:

2. Invest in investments that pay a regular income

Singapore Savings Bonds (SSBs)

With Singapore Savings Bonds, returns generally match the returns of Singapore Government Securities that have the same tenor. They are also guaranteed by the Singapore Government which has a top-notch ‘AAA’ credit rating by international credit rating agencies.

And because the interest paid increases each year, the longer you hold SSBs, the higher the return.

This can work well if you are diversifying your investments, saving for retirement, or just saving for a rainy day. You can buy SSBs with Cash or your Supplementary Retirement Scheme (SRS) monies –Just log into your digiBanking account.

Dividend-paying stocks
This extends your options to shares, REITs, exchange-traded funds (ETFs) and unit trusts. It enters riskier territory, which means there is potential for loss of capital. But generally, the longer you hold good quality stocks, the lower the risk of a loss. And stocks that consistently pay dividends may provide some insulation, because you are paid income while you wait out market volatility.

You can start investing with Vickers Online or through the Online Funds Investment Platform.

3. Take up Short-Term Endowment Policies

But if you need the funds within a few years, for example for a wedding, or a child’s tertiary education, you really want your cash to grow.

Or you might have just received your pension pay-out, and are looking for a short-term place to “park” your money, while earning a better yield.
Short-term endowment policies are a way of getting nearer your financial goal, especially if you need the cash in about 2-3 years’ time.

Here’s how one such short-term endowment policy compares to longer-term endowment policies:

	Shorter-term endowment policies, e.g. SavvyEndowment	Longer-term endowment policies
Amount required	One-off lump sum to get started	Annual premiums, sometimes for as long as the endowment policy lasts
Lock-in period	2-3 years	10, 15 years or more depending on the policy you choose
Returns	Guaranteed benefits from the insurer at the end of the policy’s term. You’ll get this whether or not the policy is classified as ‘participating’ or ‘non-participating’. If you buy a participating endowment policy, you can share in the profits* that the insurer gets from investing the premiums collectively. This is referred to as a non-guaranteed* maturity bonus.
Death coverage	In the unfortunate event of death, your dependents would receive a death benefit payout. Note: This is not a major feature of the policy, as those seeking higher death benefits would typically be looking at other types of insurance. However, it does mean that in the unfortunate event of death, your beneficiaries would not lose out on your premium payment or wait for the policy to mature.

*Note: Non-guaranteed bonuses are not fixed. They are determined and declared on an annual basis.

Shorter-term endowments work best if you’ve prioritised a goal over the excitement of investing in a risky proposition. When you've already visualized the house or wedding in a few years, you really need something that grows.

And it’s easy to get started. All you need to do is log into your digiBanking account, or make an appointment with a Wealth Planning Manager.

Contact me

This advertisement has not been reviewed by the Monetary Authority of Singapore.

Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.

All investments come with risks and you can lose money on your investment. Invest only if you understand and can monitor your investment. Diversify your investments and avoid investing a large portion of your money in a single product issuer.

Deposit Insurance Scheme
Singapore dollar deposits of non-bank depositors and monies and deposits denominated in Singapore dollars under the Supplementary Retirement Scheme are insured by the Singapore Deposit Insurance Corporation, for up to S$75,000 in aggregate per depositor per Scheme member by law. Monies and deposits denominated in Singapore dollars under the CPF Investment Scheme and CPF Retirement Sum Scheme are aggregated and separately insured up to S$75,000 for each depositor per Scheme member. Foreign currency deposits, dual currency investments, structured deposits and other investment products are not insured.

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