Fixed deposits and endowment plans are two popular personal finance planning options, but which one is best? As with many other personal finance decisions, whether a fixed deposit or endowment plan is best for you will depend on your unique financial goals and your personal opinion on how best to save money.
In this article, Instant Loan reviews everything you need to know about fixed deposits and endowment plans, to help you settle on a smarter way to save money.
Fixed Deposits Vs Endowment Plans
The key difference between fixed deposits and endowment plans is that while a fixed deposit enables you to accumulate interest on a single deposit amount, an endowment plan acts more as a savings account coupled with a life insurance policy, and is usually geared more toward longer-term savers. Let’s take a brief look at the pros and cons of each before we dive deeper.
Fixed Deposit or Endowment Plan – Which Should I Choose?
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|Endowment Plan |
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Both fixed deposits and endowment plans come with their pros and cons, but how do you know which one is the right option for you? And should you consider any alternatives, such as cash management accounts, instead? Let’s look at each investment type in closer detail to help you make your decision.
More on Fixed Deposits
So, what exactly is a fixed deposit and how does it work? In simple terms, a fixed deposit is a low risk investment scheme that offers you the chance to earn guaranteed interest on a single deposit amount you make into a fixed deposit account with your preferred bank. But how does this work, exactly?
The money you invest in your fixed deposit account will earn interest, which you will receive as a lump sum payment either quarterly or annually, depending on the type of fixed deposit account set up.
Naturally, the interest rates you will enjoy will be determined by the deposit amounts you make into your account and the tenure you choose. Usually, tenures of anywhere between one month and four years are available, and you’ll need to wait until your tenure is up before withdrawing your funds if you want to secure guaranteed interest.
Different Kinds of Fixed Deposit
From long and short term fixed deposits to foreign currency fixed deposits aimed at frequent international travelers, there are a whole bunch of different fixed deposit options available to savers in Singapore, but which is best for you? Here are the most common variants available:
Short Term Fixed Deposits
If your key financial goals involve near-term savings, short term fixed deposits might be a good fit. The tenure of typical short term fixed deposits will almost always be less than a year, ranging from three to six months on average, or potentially even less. That said, you will get lower interest rates in the short-term than you otherwise would with a longer-term plan.
Long Term Fixed Deposits
Aimed at savers who wish accumulate more money over a period of two years or more, long term fixed deposits offer higher interest rates for two, three or more years. The longer the tenure, the better the rate.
Foreign Currency Fixed Deposits
If you intend to save money here in Singapore to be spent elsewhere in foreign currency, foreign currency fixed deposit accounts will probably be the most suitable type of fixed deposit account for you. These enable you to convert SGD to foreign currency, but then convert your savings back again when your tenure ends, according to the prevailing foreign currency exchange rate. Shopping around to secure the best interest rate is always crucial.
As with any kind of personal financial product or investment strategy, fixed deposits have their positives and negatives. Let’s take a brief look at what you can expect.
Pros of Fixed Deposits
- You’ll get a guaranteed return so long as you keep your money invested.
- There is no limit imposed on your initial maximum deposit amount.
- Fixed deposit accounts can help to ensure better cash management.
- You can earn interest via a relatively low risk investment.
- The tenure of your fixed deposit can be decided entirely by you.
Cons of Fixed Deposits
- Liquidity is limited as withdrawing early could result in penalties and fees.
- You can’t invest multiple deposit amounts or make top-ups to your account.
- Start-up capital in the form of a minimum deposit is required from the get-go.
- The average interest rate is relatively low when compared to other investment strategy types.
More on Endowment Plans
An endowment plan or endowment insurance plan usually combines two important financial products into one – traditional savings accounts and a life insurance policy. Most endowment insurance plans lean more heavily towards savings accounts than insurance coverage, but the two are always very closely intertwined.
In short, an endowment plan will require you to pay premiums (i.e., contributions toward your savings) on a monthly basis, with the cost of premiums paid influenced by how much you wish to accumulate by the time your endowment plan tenure expires.
Endowment insurance plans, in a sense, require you to make “forced savings” through the premiums paid, as any failure to pay premiums could result in the invalidation of your policy. This makes endowment plans great for those who traditionally find putting money aside difficult. You’ll also get to enjoy a standard life insurance benefit or death benefit of 101% to 105% as a bonus, as part of your premiums paid will always go toward life insurance coverage.
Different Types of Endowment Plans
Just as we saw with fixed deposit plans, endowment plans come in lots of different shapes and sizes. Pretty much all endowment plans will provide you with a lump sum payment when the policy reaches its maturity date, but endowment plans themselves can be categorized into limited pay plans, premium payment terms and many more kinds, some of which pay out monthly benefits instead. Here are the most common endowment plan types to be aware of:
Standard Endowment Plan
A typical or standard endowment plan will reward you with a lump sum when the plan reaches its maturity. In addition to this, you might also get a standard life insurance benefit, or an additional cash bonus thrown in for good measure. You also have the freedom to reinvest and tap into higher returns should you so wish.
Participating Endowment Plans
A participating plan ties you into paying premiums for a set period. For example, a 15-year participating endowment plan will expect you to pay premiums for 15 years at a set amount per annum, such as $5,000. Once your policy hits its maturity date, you’ll get to enjoy definite returns totaling what you put in (e.g., $75,000), as well as whatever your plan has accumulated – which, depending on your policy, will usually include a non-guaranteed bonus.
Non-Participating Endowment Plans
A non-participating endowment plan requires you to pay just a one-off premium and then pays interest on top of your invested amount over the course of the agreed tenure. You’ll get a guaranteed return at the interest rate agreed, which is usually around 2.10% and always compliant with Monetary Authority of Singapore rules.
Retirement or Annuity Savings Accounts Plans
If you want an endowment plan that pays out a monthly sum, retirement or annuity savings plans might be a good fit. These endowment insurance plans enable you to choose your retirement age and save toward it over the course of your life. You also get tons of flexibility in terms of premium payment terms and tenure, too.
- Legacy Savings Accounts Plans
Savers who wish to pass down wealth to their descendants can get a multi-generational legacy saving plan which will run throughout the entirety of the account holder’s death. At this point, a death benefit and other pre-agreed payments will be distributed, and you’ll need to select someone from the next generation to take over your insurance plan.
- Education Savings Accounts Plans
These plans are the perfect fit for Singaporeans whose primary goal is to save for their child’s future education. Your child, who will go down as the insured party, will benefit from capital guaranteed on multiple annual payments that can be put toward university and other important education milestones.
Endowment plans have their advantages and disadvantages, and it’s important to understand these in full to help you make an informed decision on whether an endowment plan is right for you.
Pros of Endowment Plans
- Endowment Plans offer a structured approach to longer-term saving.
- It’s easy to save toward milestones and specific goals.
- Part of your payments go to an insurer’s fund, and you get life insurance benefits thrown in.
- You can close cash gaps in any pre-existing life insurance plan you may already have.
Cons of Endowment Plans
- A higher risk tolerance or risk appetite is required.
- You’ll need to commit for a long time.
- Your guaranteed return won’t always match your guaranteed principal.
- There may be fees and penalties involved if you terminate your plan early.
Fixed Deposits – The Best Choice for Short-Term, Low-Risk Savings
If you’re the kind of saver who favors low risk investments and are simply looking for a temporary account to store your money in and accumulate some no-nonsense interest, a fixed deposit is undoubtedly the best fit for you.
The relatively low entry barriers to opening a fixed deposit account enable you to start a new fixed deposit account with just $5,000, making fixed deposits a fantastic match for lower-income savers, too. What’s more, if you intend to save in a foreign currency, a foreign currency fixed deposit account is pretty much your only feasible option.
Get to know more about the subject with the 10 Best Fixed Deposit Rates In Singapore
5 Best Fixed Deposit Accounts in Singapore
|Bank||Interest Rate||Term/Tenure||Minimum Deposit Amount|
|Bank of China||2.05 to 2.1%||18 to 24 months||$5,000|
|CIMB||1.8 to 2.0%||18 months||$10,000|
|Citibank||0.08 to 0.1%||6 to 36 months||$10,000|
|DBS / POSB||0.85 to 1.3%||8 to 18 months||$1,000|
|Hong Leong Finance||1.38 to 1.98%||7 to 13 months||$30,000 to $50,000|
1. Bank of China
- Interest Rate: 2.05 to 2.1% p.a.
- Term / Tenure: 18 to 24 months
- Minimum Deposit Amount: $5,000
Bank of China’s latest fixed deposit accounts offer up to 2.1% interest on tenures ranging up to a maximum of 24 months. Shorter tenures attract slightly lower interest rates of 2.0%, but customers are free to set up with just $5,000.
2. CIMB Fixed Deposit
- Average Interest Rate: 1.8 to 2.0% p.a.
- Term / Tenure: 18 months
- Minimum Deposit Amount: $10,000
CIMB’s fixed deposit accounts require at least $10,000 for set-up, but you’ll get to enjoy an interest rate of between 1.8 and 2.0% on tenures of 12 and 18 months, respectively – with even better offers specially reserved for existing CIMB banking customers.
3. Citibank Fixed Deposit
- Interest Rate: 0.08 to 0.1%
- Term / Tenure: 6 to 36 months
- Minimum Deposit Amount: $10,000
Citibank’s rates might not match up to what competitors are offering on their fixed deposit accounts right now, but Citi offers tenures of between six and 36 months and the shorter plans attract the best rate – making this particular plan a great fit for short-term savers.
4. DBS / POSB Fixed Deposit
- Interest Rate: 0.85 to 1.3% p.a.
- Term / Tenure: 8 to 18 months
- Minimum Deposit Amount: $1,000
Singaporeans can now open a super-competitive DBS / POSB fixed deposit account for a minimum deposit amount of just $1,000, with attractive rates of 1.3% p.a. currently up for grabs for anyone who opts for a tenure of 9 months or more.
5. Hong Leong Finance Fixed Deposit
- Interest Rate: 1.38 to 1.98% p.a.
- Term / Tenure: 7 to 13 months
- Minimum Deposit Amount: $30,000 – $50,000
Hong Leong has a solid reputation for offering great rates and this up to 13-month fixed plan is no exception. You’ll need to cough up quite a high minimum deposit, but you’ll get great rates in return, as well as the peace of mind of dealing with one of the best banks in the business.
Endowment Plans – The Best Choice for Longer-Term Savings and Singaporeans with Specific Goals
Anyone looking to accumulate more money over a longer time period should consider endowment plans as a more suitable alternative. You’ll need a higher risk appetite to get involved, but you’ll be committing to a much better and more structured approach to savings – which also makes endowment plans the go-to choice for savers with specific goals.
Endowment plans help you to work your way toward important milestones, such as your child’s future education at university or your upcoming retirement. You can save up as much as possible ahead of reaching retirement age, and enjoy all-important life insurance, disability and death benefits should you ever encounter unforeseen circumstances.
5 Best Endowment Plans in Singapore
|Bank||Rate||Minimum Premium||Policy Term|
|Great Eastern||2.30% p.a.||$10,000||2 years|
|NTUC Income||1.48% at maturity||$5,000||3 years|
|Tiq||2.30% p.a.||$10,000||3 years|
|ManuLife||1.1% at maturity||$10,000||1 year|
|DBS||3.39 to 3.54%||$5,000||2 years|
1. Great Eastern GREAT SP Series 7
- Rate: 2.30% returns p.a.
- Minimum Premium: $10,000
- Policy Term: 2 years
This increasingly popular short-term endowment plan guarantees returns of 2.30% for two years, making it ideal for short-term savers who want to enjoy death and total and permanent disability benefits on top of their savings.
2. NTUC Income Gro Capital Ease
- Rate: 1.48% guaranteed at maturity
- Minimum Premium: $5,000
- Policy Term: 3 years
NTUC Income is offering a 1.48% guaranteed yield on this excellent three-year plan, which also boasts a maturity benefit of 104.51% of your single premium amount. You’ll only need $5,000 to get started but will get a very attractive lump sum if you apply for the maximum premium on offer.
3. Tiq 3-Year Endowment Plan
- Rate: 2.30% p.a. at maturity
- Minimum Premium: $10,000
- Policy Term: 3 years
If you’re looking for a decent percentage of capital guaranteed at maturity, Tiq is currently offering a very competitive 2.30% on its latest short-term endowment plan. You can pay into a premium up to $1,000,000 via multiple payment options, and you’ll be insured up to 101% in the event of your death.
4. Manulife Goal 9
- Rate: 1.1% upon maturity
- Minimum Premium: $10,000
- Policy Term: 1 year
This single premium policy, which is payable via either cash or SRS funds with a minimum of $10,000, will insure you up to 101% of its total premium in the event of your death. It also offers a guaranteed capital return, plus 1.1% upon maturity.
5. DBS Savvy Endowment 7
- Rate: 3.39 to 3.54%
- Minimum Premium: $5,000
- Policy Term: 2 years
DBS has quite a reputation here in Singapore and this high-rate endowment plan is hands down their best policy right now. From just $5,000, you get to enjoy up to 3.54% in bonuses and non-guaranteed payouts at maturity, making this plan a great option for most savers.
Alternative Savings Option – Cash Management Accounts
If neither a fixed deposit nor an endowment plan sounds like a sensible fit for you, then you might want to consider cash management accounts as another, very viable savings alternative.
Cash management accounts are a kind of savings and investments hybrid that enable you to save money into a high yield account while simultaneously managing your very own investment portfolio, which can often be diversified as you please.
Cash management accounts require high liquidity if you wish to draw-down your funds easily and are best suited to Singaporeans who have a good knowledge of savings and investments. That said, you’ll benefit from high interest rates and an efficient way of keeping track of your investment portfolio and investment fund’s performance, making it easier not to lose money.
Conclusion – Is a Fixed Deposit or an Endowment Plan the Right Choice for You?
There are tons of different finance products out there to help Singaporeans better achieve their short and long term savings goals, but endowment plan and fixed deposit accounts are some of the best options currently available. To determine whether fixed deposit accounts or an endowment plan is the right fit for you, you should:
- Think about whether your savings goals are more long or short-term oriented.
- Consider whether you wish to pay a single premium or make payments into a combined insurer’s fund and savings scheme which will provide insurance benefits alongside your savings.
- Weigh up your unique goals and make a detailed comparison of the various options available to you, including cash management accounts, to determine which financial products are the best fit.
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