FD, SSD or T-Bills: Where to park $100,000

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Interest rates are at a very attractive level now.

With Singapore battling inflation, interest rates have soared almost 300% since the start of the year. At the beginning of 2022, 1% return is the norm. Today. We are at more than 4% for selected investment instruments.

That brings us to the question - Where should I invest if I have $100,000?

Before we answer the question, let's add a qualifier. The investments proposed should not lose their principal values over time, and the returns are guaranteed. That would rule out investments such as shares, investment link insurance, crypto, property, art, watches and even that Birkin bag.

If we explore Singapore's financial landscape today, only 3 investments stand out.

  1. Singapore Fixed Deposit
  2. Singapore Savings Bonds (SSB)
  3. Singapore T Bills.

For a full detailed explanation of each of the products, refer to our post here " Fixed Deposit vs Singapore Savings Bonds vs T- Bills "

Singapore Fixed Deposit 

Source: CIMB


The highest rate for 100K would be at 3.9% over 18 months. This rate is from CIMB bank.

Why should you place your money in fixed deposit?

  • Interest is guaranteed for 18 months. No reinvestment risk compared to T bills. 
  • No opportunity cost compared to T bills 
  • Higher first year compared to SSB
  • Can accommodate a large amount

Potential Downside

  • Should interest rates increase, T-bills will be more attractive.
  • Deposits are guaranteed for up to $75,000 per depositor per bank
  • An early break of FD may result in no interest and in some cases penalty


Singapore Savings Bonds

Source: MAS
Why should you place your money in SSB?
  • Guaranteed by Singapore Govt
  • Average return over 10 years at a high of 3.47%. No  Reinvestment risk.
  • Flexibility to withdraw at any time with accrued interest
  • Only need $1000 to invest

Potential Downside

  • Should interest rate increase, FD and T bills will be more attractive, especially for year 1
  • May not be able to invest $100,000 at once due to limited supply. Previous issues average about 10K per issue.
  • Interest cannot be automatically compounded.
Singapore T bills

Singapore T bills are expected to be 4.4% to 4.5% and above for the November Tranche based on the  12 weeks institutional MAS bills, which close at 4.6%.
At the last round, MAS 12 weeks bills closed at 4.35%, and the 6-month T bills closed at 4.19%

Why should you place your money in Singapore T-bills
  • Highest interest rates when compared to Fixed Deposit and SSB
  • Short term duration
  • Able to dictate the minimum rates
  • It can accommodate large amounts
  • Can use SRS and CPF
  • Only need $1000 to invest

Potential Downside
  • Reinvestment risk - Might reinvest at a longer rate for the next tranche, impacting overall returns.
  • Potentially lose up to 2 months of interest for CPF and 1-month interest for Cash. This will bring down overall interest.
  • It may not be suitable for less sophisticated investors
  • Low liquidity and may end up lost if redeemed early
  • Hassle to invest if use CPF. Need CPF-IS account and apply in person at the branch
A Mathematical Example
Assuming you place $100,000 in FD, SSB and t bills using a one year timeframe. This is the return you will get based on the possible rates.

FD 3.9% (CIMB)
Returns: $3,900

SSB 3.26% (Year 1) 
Returns $3,260

Singapore 6 months T bills 4.4% ( Assuming), placed twice a year
Returns: $4400 - $366* = $4034
*Opportunity cost due to the debiting / crediting of funds. Technically can lose up to 1 month interest 
Verdict
Different folks will have different investment objectives and periods. As such, there is no one size fits all advice. It is best to consult your financial advisors for a customised solution. 

Disclaimer
The information provided by TWD serves is for educational purposes. It is not meant to be personalised investment advice. Readers must do their due diligence and refer to financial advisors for their investment needs. The information is correct as of 28 Oct.

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