Interest rates are rising: Here’s what you need to know to help you make your savings work harder for you.
TEXT: MELODY TAN
Bank interest rates have been rising steadily during the last year, causing some home loan holders a corresponding increase in anxiety. But there’s a silver lining amid this uncertainty: This is also a good time to make your savings work harder and earn higher interest.
Choosing the right type of interest-earning bank product, however, might be a challenge. After all, you don’t want to lock in your savings for years if you’re planning to further your studies, or buy a flat. Neither do you want to miss out on getting the maximum amount of interest possible.
Here’s a handy guide on what you should look out for, when it comes to your own interest (rates, that is).
LEARN WHAT PRODUCTS WORK FOR YOU
Interest rates don’t just apply to savings accounts or mortgage loans. There are also fixed deposits, interest rate-linked structured deposits, Singapore Savings Bonds (SSBs) and offset mortgage accounts, to name a few.
To decide which bank product works best for your needs, it’s best to first consider your immediate, mid-term and long-term financial goals.
Financial experts recommend that before doing anything else, you set aside an emergency fund consisting of six months’ worth of your usual expenditure. Besides recurring bills, you’ll want to factor in food, transport and insurance premiums.
If you anticipate collecting the keys to your new flat within the next two years, you might prefer a high-yield savings account or a 12-month fixed deposit over buying an SSB, as you’ll need to hold onto the latter for the full 10 years to enjoy the maximum interest rate.
If you worry about unexpected expenses – such as medical bills – and need to maintain liquidity, an interest rate-linked structured deposit isn’t the best choice, as you may suffer major losses when you withdraw your money early. There might also be hefty transaction fees incurred.
READ THE FINE PRINT
Before investing your savings, always read the fine print carefully. Besides minimum time commitments, bank products may have other requirements you need to meet to receive the higher interest rate.
It’s common for high-yield savings accounts to require a minimum monthly spend on a linked credit card, or for you to credit your salary, pay bills through GIRO or purchase an insurance product from the bank. You might also be required to maintain a certain minimum amount in the account at all times or end up incurring fall-below fees.
Last but not least, it’s a good idea to assess the risk level of the product. For the risk averse, fixed deposits are a safe choice as up to $75,000 of your cash is insured by the Singapore Deposit Insurance Corporation – so your savings are protected.
MAXIMISE YOUR SAVINGS
Be sure to look out for specific criteria that you can utilise to get the best interest rate possible.
For example, if you know you’re going to be making large purchases soon – like flight tickets, hotel bookings or new furniture – check to see if this expenditure can help you to earn more interest. Some, like the DBS Multiplier Account, offer higher interest rates with higher transaction amounts.
Similarly, the Standard Chartered JumpStart account is for those aged between 18 and 26, offering up to 0.50 per cent per annum interest and 1 per cent cashback on eligible purchases made with the Cashback Debit Card linked to your account (It certainly pays to be young).
If the interest gets credited into your account on the 15th of every month, for example, it’s in your best interest (pun intended) to schedule large purchases or significant cash transfers for after the 15th, so that you can earn a larger amount of interest.
Another option is to let your money work for you on digital platforms like Endowus. It is Singapore’s first digital investment advisor for CPF, SRS and cash savings. HomeTeamNS members enjoy 20-per-cent off Endowus fees for three years with a minimum investment of S$1,000.
TO LEARN MORE, READ UP
If you want to compare fixed deposit or bank account interest rates, there are plenty of online resources that have done the work for you.
Some, like Singsaver, even provide helpful comparisons – such as between fixed deposits and savings accounts – to help you decide which product suits your needs best. Others like MoneySmart partner with banks and financial institutions for a seamless experience, allowing you to apply directly. Seedly encourages users to share opinions and insights, for a more community-oriented take on personal finance.
If you’re new to personal finance literacy, check out MoneySense, Singapore’s national financial education programme. It offers handy articles and starter packs on basic topics such as understanding how savings accounts work, to more complex resources on different types of funds and investments.
With higher interest rates available, it’s time to take an interest in your finances.
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