iFAST: A Singapore Saver’s Guide To Better Savings And Deposits

Excited about the latest promotional fixed deposit rate? Or rushing to subscribe for a limited tranche of a single premium endowment plan? Read this first!

iFAST Global Markets | Published on Jun 29, 2022

Are you a fixed deposit expert?

Like most savers, you’ll want your money to work the hardest for you.

As a fixed deposit expert, you’re probably investing a lot of time and energy checking the latest bank fixed deposit rates, to ensure that you’re getting the best deal. As a savvy saver, you’re probably aware of Singapore bank deposit insurance, which currently covers up to S$75,000 per account (this is only applicable to Singapore dollar denominated deposits).

This brings about additional complications in your decision-making process, and you’re likely to hold multiple bank accounts in order to diversify your bank deposit exposure. In addition, some promotional rates are only available for “fresh funds”, and you’ll be frequently moving funds from one bank to another, in order to optimise your deposit rates.

Or have you opted for endowment plans?

You may have also chosen to park some of your savings in an endowment plan. Specifically, one that looks, feels and smells like a fixed deposit. The plan comes with negligible insurance coverage, promising to pay 101% of your initial premium in the unlikely event of death. What is probably more captivating is the yield the plan offers, typically over a 2-year or 3-year period. But you can’t withdraw your funds prematurely before the plan matures, at least not without a penalty.

That’s almost exactly like a bank fixed deposit you say, as you hand over your savings, in exchange for a marginally higher yield compared to a bank fixed deposit. Helping your decision are a plethora of descriptions like “capital guaranteed”, “maturity bonus” and “guaranteed acceptance”, while the possibility of a premature closing of a plan means you’ll typically act quickly when you first hear about a new tranche.

What if there was a better way to enhance your savings and deposits?

If you fall into either one of the above categories, you’ll want to sit up and listen.

Right now, there is actually a better way to enhance your savings and deposits. Our clients are currently locking in a yield of 2% or more*, and they don’t even have to worry about deposit insurance, because that yield is actually guaranteed by an entity safer than your bank.

So what are our clients buying?

They’re buying Singapore Government Bonds, which are guaranteed by the full faith and credit of the Singapore Government. The Monetary Authority of Singapore (MAS) actually refers to them as Singapore Government Securities Bonds (SGS Bonds), so we’ll use the term SGS bonds here.

To allay any potential fears, Singapore has a credit rating of AAA (or Aaa, in the case of Moody’s), the highest possible credit rating achievable by any company or government. On its website, the MAS even tells you that for investors, SGS bonds are amongst the safest possible investments to hold.

*The NX13100H; Coupon: 2.750%; Maturity: 01/07/2023 issued by the Singapore Government currently offers an ask yield to worst of 2.260% (as of 29 June 2022)

Aren’t SGS Bonds supposed to be low yield?

But wait, aren’t SGS bonds supposed to have the lowest yield? After all, they are probably the safest instruments you can use to grow your savings. 

In an efficient market, the yield on SGS bonds would represent the real “risk-free” rate, the basis for which all other investments are priced on. However, markets aren’t always efficient, and a lot of mispricing can occur, especially after turbulence in financial markets.

Thanks to the US Federal Reserve’s interest rate hikes (and expectations of further hikes to come), Singapore’s interest rates have jumped significantly and sharply since the start of 2022 (see Chart 1). The 1-year and 2-year SGS yields have risen 171 basis points and 158 basis points respectively (to 2.25% and 2.49%, as of 27 June 2022). As shown in the chart, these are the highest yield levels since 2007.

Savers are now earning less optimal yields on savings and deposits

Following the sharp rise in short-term rates, we note that traditional savings and deposit rates have failed to track this increase, which means that many savers are now earning less optimal yields on their savings and deposits. As shown in Table 1, a quick check amongst some popular banks in Singapore shows that even higher advertised rates are still significantly lower than the yields on SGS bonds currently.

Table 1: Sample deposit rates (including promotional rates)

	Bank A	Bank B	Bank C
12 months	1.15%	0.80%	1.30%
24 months	1.30%	1.40%	1.60%
Type	Local Bank	Local Bank	Foreign Bank
Condition	Applicable to first S$20,000 only, 0.05% on anything in excess	Fresh funds only	Not mentioned

Even the higher yielding single premium endowments can’t seem to compete with the SGS bonds. Have a look:

Table 2: Examples of single premium endowment plans

	Tenure	Guaranteed Return(per annum)	Advertised Return(Per Annum)	Corresponding SGS Bond Yield (Per Annum)
Product A	1 year	1.05%	1.10%	2.25%
Product B	2 years	1.68%	1.75%	2.49%
Product C	3 years	2.30%	2.30%	2.76%

What’s next?

At iFAST Global Markets, we can help you to optimise your savings and deposits with the help of SGS Bonds. Reach out to your adviser today to find out how.