We are experiencing a global era of inflation, signifying the end of the low-interest rate period. These two phenomena are interconnected and can significantly impact your daily life.
In a scenario where stock markets are declining, and prices are rising, it becomes crucial to safeguard your assets from eroding and diligently strive to increase their value.
Is it accurate to claim that “Cash is King”? Not quite! In reality, cash holdings are susceptible to losing their actual value due to rising prices. To reduce the falling value of your assets, you should ditch or convert your cash savings into low-risk investments yielding better returns.
What are low-risk investments, and how do you join the club? Let’s see the following.
What does Low-risk Investments Mean?
Low-risk investments are investing tools capable of rendering returns of 2-3% per year, slightly over payoffs by ordinary accounts, such as savings.
Besides, they are both liquid and risk-averse. The former is that you can turn it into cash in a short time without incurring high costs. The latter is the assets undergo little fluctuations in the process, which means they are stable in price.
What’s more, low-risk investments diversify away risks from an investment portfolio composing stocks or other high-risk investments.
Examples of low-risk investments include cash management accounts, fixed deposits, higher interest savings accounts, insurance savings plans, money market funds, Singapore Government Securities (SGS) bonds, Singapore Savings Bonds (SSB), and Treasury Bills (T-bills).
Top 8 Low-risk Investment Options
Consider incorporating these eight popular low-risk investments in Singapore into your investment portfolio to mitigate risks and enhance your income potential. The following provides a detailed breakdown of each option:
1. Cash Management Account
A cash management account is a managed account service provided by investment brokerages in Singapore. An account manager invests the cash in money market funds and earns interest. The funds are highly liquid and risk-minimum.
The returns from cash management accounts in Singapore range from 3% to 5% annually. They are still higher than that from a savings account of 0.05% to 0.1% per year.
A typical cash management account has the following features:
- Hugely liquid: Like a savings account, a cash management account doesn’t lock up your funds for a certain period. Suppose you want to move the money somewhere else. In that case, all you need is a notification and expect a transaction to be completed by the next day.
- No minimum balance: Most brokerages don’t set a minimum amount. Therefore, you can open a cash management account with them through a website or mobile app and earn interest upon the fund transfer completion.
- Zero fees: Even though money market funds charge you a meager price than other equity funds, many brokerages will rebate the fees by crediting them to your account. In other words, the fees levied by a cash management account is or almost zero.
Unlike other savings accounts banks offer, the Singapore Deposit Insurance Corporation (SDIC) does not provide a fund guarantee to a cash management account. However, the Monetary Authority of Singapore (MAS) regulates locally licensed investment brokerages. Hence, it is mildly riskier than a savings account.
2. Fixed Deposit
A fixed deposit is a guaranteed investment a bank provides. A depositor puts funds into a fixed deposit account with a bank for a certain period, like 3 months or longer, to earn interest from the money upon expiry.
Depending on the sum amounts and lock-in periods, fixed deposit interest rates vary from bank to bank. The interest rates can go from 2.9% to 4% per year.
You should know the typical features when planning to invest in a fixed deposit:
- Principal and interest guarantees: The bank guarantees your funds and interest payments upon expiry. However, if you withdraw the funds earlier than specified, the bank may impose an early withdrawal charge, and you may lose some or all returns, but the principal remains intact.
- Short tenure: Fixed deposits have durations from 1 to 24 months or shorter than 36 months. The short-term nature makes it a fund parking place for emergencies or other near-term purposes.
- Interest rates on an amount basis: Besides deposit terms, banks offer better rates for larger-amount deposits. Generally, the greater the sum and longer a depositor takes with a bank, the better terms he can negotiate.
Banks in Singapore are under the supervision of the Monetary Authority of Singapore, and the Singapore Deposit Insurance Corporation protects all local-dollar fixed deposits. Therefore, you can rest assured of your money staying safe with the banks.
3. Higher-Interest Savings Account
Like fixed deposits, banks offer better interest payouts to savings account clients if depositors have a good and frequent trade history and keep a minimum balance with their banks.
Generally, a higher-interest savings account offers rising rates for larger deposits and other deals like mortgage and salary payouts with the bank. A client may get a higher rate if a fund deposit jumps over a bar. Rates differ among banks ranging from 0.05% to 6%.
Getting to know the characteristics of higher-interest savings accounts helps you grab a better deal:
- General criteria: Besides a minimum monthly balance with a higher savings account, you may fulfill all or part of the requirements: salary record with the bank, mortgage, loans, investments, insurance, minimum spending via credit or debit cards, and, finally, GIRO bill payments.
- Charges: Banks may penalize an account holder if minimum requirements fall below a specified level by collecting a fee from the depositor.
Higher-interest savings accounts are one of the investment tools in Singapore. It offers a safe vehicle, guaranteed by the Singapore Deposit Insurance Corporation (SDIC), to yield higher returns.
4. Insurance Savings Plan
An insurance savings plan issued by a life insurance company provides life coverage and savings to a policy owner. The advantage is you can get both insurance and investments in one plan. However, the insurance cost may reduce your savings compared to other investment vehicles.
Insurance companies offer numerous savings plans to meet clients’ needs, like traditional guaranteed cash values, dividend policies, investment-linked plans, and other target savings plans.
Insurance savings plans have the following features you should know when pouring money into them:
- Charges: Besides life insurance costs, an insurance plan may have other fees like policy and administration fees which may reduce savings return, especially investment-linked plans.
- Commitment period: An insurance savings plan is a mid-to-long-term wealth accumulation vehicle. If you surrender your plan before expiry, a charge could arise and reduce your investment returns. You should not commit your emergency funds to this type of plan.
The SDIC also protects insurance savings plans, and policy owners can retrieve their funds in case of an insurance company default.
5. Money Market Fund
Unlike regular exchange-traded funds, a money market fund invests in highly liquid assets, like treasury bills, certificates of deposits, and savings accounts.
These assets have short durations, ranging from 3 months to 1 year. Money market funds offer a temporary fund parking shelter to earn a minimum return.
Standard features of money market funds include:
- High liquidity: The fund holds close to cash or its equivalent assets highly convertible into cash in a short time. The average return is approximately 0.7% to 1% per year.
- Low risk: Money market funds have little exposure to risky assets like stocks or corporate bonds. They have minimum pricing risks and are convertible into cash.
Though safe in principal and interest, money market funds are not in the guarantee scheme of SDIC.
6. Singapore Government Securities Bond (SGS)
Issued by the government, the Singapore government securities bonds comprise 3 categories of financing purposes: to develop the domestic debt market, to finance major, long-term infrastructure projects, and support long-term green infrastructure projects.
The bond maturity ranges from 2 to 50 years, with yields from 3.08% (2 years) to 2.59% (50 years.) The MAS regularly sells the bonds through auction and syndication. The bonds are open to global investors. An SGS bond pays coupons every 6 months.
Here are the features an investor should beware of:
- Investment requirements: A minimum investment amount of S$1,000 is necessary for a subscription to an SGS bond. No subscription limit of amounts exists, but a buyer’s share of investments may be limited due to the allotment method in an auction.
- Transferability: An SGS bond is a highly liquid and transferable asset. You can sell and buy on the secondary market through banks such as DBS, OCBC, UOB, and the Singapore Stock Exchange (SGX), except for buying from the government.
- Early redemption: You cannot withdraw your investment from an SGS bond except at maturity but may sell it on the aforementioned secondary channels.
- Tax: Individuals are all exempt from capital and income tax.
- Investing sources: Apart from cash (applicable to public offers of syndications), you can use funds from the Supplementary Retirement Scheme (SRS) or CPF Investment Scheme (CPFIS) to buy SGS bonds.
Rated “AAA” as the solid sovereign backup by the government, the SGS bonds are low-risk tools for investors seeking stable and principal-safety investment vehicles.
7. Singapore Savings Bond (SSB)
Like SGS bonds, Singapore Savings Bonds are another channel for individual investors to accumulate wealth. An SSB has a tenor of 10 years maximum and offers step-up interest increasing each year. The overall interest payments for an SSB are approximately the same as an SGS bond.
SSBs have a credit rating “AAA” and full backup from the government. The government uses an allotment method to distribute SSB to applicants if applications exceed SSB issues. An investor can at least get an SSB of S$500 in denomination.
The features of an SSB are as follows:
- Investment requirements: A minimum investment amount of S$500 is distributable to a qualified applicant aged 18 or above. An investor can buy up to S $ 200,000 of SSBs. Like SGS, SSB is also open to global investors.
- Transferability: SSBs are not transferable except for a holder’s death.
- Early redemption: An investor can redeem an SSB before or on maturity. In the event of early withdrawal, he can withdraw the principal with interest accrued proportionally without penalty.
- Step-up interest payments: The SSB issuer use step-up interest payments to encourage longer-term or full ownership. Therefore, the longer an investor holds an SSB, the more interest payments he will get near the end of a bond term.
Investors are also exempt from income and capital tax from investing in SSBs.
8. Treasury Bill (T-bill)
The treasury bill is another government-issued security besides the other 2 Singapore government bonds. A t-bill has the shortest duration from 6 months to 1 year.
The government uses T-bills to finance daily operations. Currently, it pays a cut-off yield of 4% per year in the January issue.
Here are the main features of a treasury bill:
- Investment requirements: The minimum investment amount is S$1,000. A T-bill is issued on a discount basis and paid at face value at maturity. The uniform price auction is the sales venue.
- Transferability: A treasury bill is transferable at the 4 banks and SGX.
The T-bill has a solid credit rating of “AAA” and the government’s full faith and should be a part of your investment strategy.
See Also: Building Emergency Funds and How to Invest in Singapore Property with Little Money
Summary Table of Low-Risk Investments
Here is the list of low-risk investments to create wealth:
Cash management account
|High||Regulated by the MAS||0.05% to 0.1% per year||Without limit|
|Medium||Guaranteed by the Singapore Deposit Insurance Corp.||2.9% to 4% per year||3 months to 24 months|
Higher interest savings account
|High||Guaranteed by the Singapore Deposit Insurance Corp.||0.05% to 6% per year||Without limit|
Insurance savings plan
|Low||Guaranteed by the Singapore Deposit Insurance Corp.||Vary depending on plans and companies||
3 years to whole life
|Money market fund||High||Regulated by the MAS||0.7% to 1% per year.||
|Singapore government securities bond||Low||Highest rating “AAA” and full faith of the Singapore government||3.08% (2 years) to 2.59% (50 years||
2 years to 50 years
|Singapore savings bond||Low||Highest rating “AAA” and full faith of the Singapore government||3.47% per year||
|Treasury bill||High||Highest rating “AAA” and full faith of the Singapore government||4% per year||
6 months and 1 year
Low-risk investments should be a part of your investment portfolio. They can reduce investment risk and provide regular income. However, an investor should review his financial situation and decide on the most suitable investments according to his investment criteria.
- Low-risk investments offer stability and security for individuals seeking to build wealth while minimizing the potential for significant financial losses.
- Some popular low-risk investment options in Singapore include cash management accounts, fixed deposits, higher interest savings accounts, insurance savings plans, money market funds, Singapore government securities bonds, Singapore savings bonds, and treasury bills.
- These low-risk investments provide varying degrees of liquidity, security, and returns, allowing investors to diversify their portfolios and potentially earn modest, stable income over time.
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