Best Fixed Deposit Rates yield 3.60% – Better buy than T-Bills after this week’s terrible auction? (August 2024)

In case you missed it.

6-month T-Bills yields fell off a cliff this week.

Latest 6-month T-Bills yields closed at 3.40% at this week’s auction, the lowest yields in the past 18 months.

All while demand soared to record highs of $18 billion.

You can see the yields charted below – I even had to adjust the vertical axis to display it properly, that’s how bad the auction was.

At 3.40%, T-Bills yields are not that attractive anymore, and many other options like Fixed Deposits can start to compare favourably.

Which is exactly what I wanted to explore today.

3 issues I wanted to discuss:

1. What is the outlook for interest rates going forward?
2. What are the Best fixed deposit rates in Singapore as of August 2024? What about non-fixed deposit options?
3. Where would I put my cash to replace T-Bills?

Will interest rates go up or down in 2024? (as of August 2024)

I don’t think it will come as a surprise to anyone that interest rate cuts are coming.

Powell has been pretty vocal about it for a while now, prepping the way for a Sep rate cut.

At this point the market is pricing in:

• 100% chance of a rate cut in Sep 2024
• 32.5% chance of 2 rate cuts in Sep 2024
• At least 3 rate cuts in 2024

This is what is contributing to the sharp drop in interest rates across all cash products the past few weeks.

What are the Best fixed deposit rates in Singapore as of August 2024?

Best Fixed Deposit Rates yield 3.50% if you deposit directly with the bank (as a retail customer)

The full table is further below in the article, but I’ve summarised the best interest rates for the 3, 6 and 12 month tenures below.

This is assuming you deposit with the bank directly as a retail customer.

Best Fixed Deposit Rates yield 3.60% if you deposit with Syfe Cash+ (to access institutional fixed deposit rates)

Alternatively, you can use Syfe Cash+ Guaranteed for better interest rates.

The way this works is that you park the cash with Syfe, who will then deposit the cash into a bank fixed deposit.

This allows you access to institutional fixed deposit rates which are slightly higher than the retail fixed deposit rates you see above.

If you use Syfe Cash+, these are the latest interest rates:

• 3 months – 3.60%
• 6 months – 3.50%
• 12 months – 3.20%

Comparing interest rates for T-Bills vs Fixed Deposits vs Syfe Cash+ Guaranteed across all tenures (August 2024)

I’ve tabulated the interest rates for the 3 cash options below:

I hate to say it, but the latest auction results bring T-Bills yields down to match fixed deposit options.

Whereas previously T-Bills were significantly more attractive than fixed deposits due to higher interest rates.

Much of that gap has now been bridged – and we’re seeing a 6 month yield of about 3.4 – 3.5% across the board now.

Syfe Cash+ Guaranteed is NOT SDIC insured

Do note that Syfe Cash+ Guaranteed is NOT SDIC insured, and therefore technically not risk free.

The way Syfe Cash+ Guaranteed works, is that the cash is parked in fixed deposits with the underlying bank.

But if the bank goes under, Syfe as an entity would only be insured up to $100,000, which may not be sufficient to cover the losses.

Whereas if you park the cash with the bank directly yourself, you are SDIC insured up to $100,000 (SDIC limits have gone up on 1 April).

So I leave it to individual investors to decide if they are fine with this risk, or they prefer something absolutely risk free for peace of mind.

Best Fixed Deposit Rates yield 3.50% – if you deposit directly with the bank (as of Aug 2024)

In any case, the full list of Fixed Deposit rates are set out below (bold being the most attractive for each tenure).

After the table I’ll share my views on:

1. Are non-fixed deposit options more attractive?
2. Where would I park my own cash, if not in T-Bills?

What about non-fixed deposit options to park cash for yield?

Best interest rates are 4.20% on first $20,000 if you deposit to Chocolate Finance

I wrote a detailed review on Chocolate Finance, so do check if out if you are keen.

Long story short is that Chocolate finance pays 4.2% on the first $20,000, withdrawable instantly.

The funds are invested in a selection of bond and money market funds, and Chocolate Finance will top up any returns if they are lower than 4.2%.

Personally I have some cash in Chocolate Finance, but I do want to stress that this is not SDIC insured and not risk free.

I leave it for investors to decide if you are comfortable with the risks (see my full review here).

Chocolate Finance is invite only, but you can use the FH invite link below if you are keen to try it out:

https://share.chocolate.app/nxW9/ep4q7wxp

Singapore Savings Bonds yields are pretty terrible this month

This month’s Singapore Savings Bonds are much less attractive than last month’s.

Yields on the Singapore Savings bonds are:

• 3.06% for the first 6 years
• 3.10% for 10 years

Given that last month’s Singapore Savings Bonds had much better yields and saw full allotment, investors who wanted Singapore Savings Bonds should have gotten their fill already.

Where would I put my cash to replace T-Bills?

These are the yield options available to me today for a cash / low risk investment:

I had the unfortunate situation where I had a big chunk of T-Bills maturing 2 weeks ago.

I tried to roll them over into new T-Bills, but as my competitive bid was above 3.40% (I never spoil market okay), I did not get any allotment.

That places me in a conundrum where I need to find a place to park that cash, in a climate where interest rates seem to be coming down pretty quickly across the board.

I already have enough cash in a UOB One account and in Chocolate Finance, I don’t see a need to increase that any further.

And I’m quite lazy in the sense that I don’t want to have to open a new bank account with any of the banks below, especially when the interest rates are not necessarily much better than alternative options.

I’m actually thinking of splitting some of the excess cash amongst:

1. MariInvest (money market fund paying about ~3.5%)
2. Syfe Cash+ Guaranteed (3.6% on the 3 months option)

And you know, I have a suspicion that this week’s pullback in T-Bills yields may have been overdone.

With the sharp drop in T-Bills yields, there is a chance that we see demand drop in the next auction, and a mild recovery in yields at the next auction (although I would not expect a recovery back into the 3.8% range).

So I may save some cash for the next T-Bills auction as well.

General thought process on where to park cash for high yield / liquidity?

But hey, that’s just me.

For those of you who are still deciding how much cash to split between each of the following options:

1. T-Bills
2. Fixed Deposits
3. Money Market Funds
4. High Yield Savings Accounts

I set out a simple framework below to approach the issue.

The way I see it, it’s broadly a 2 step process (which I elaborate further below):

1. How much liquid cash do you need?
2. Rest goes into highest yield options – based on your comfort level on risk

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Key question to ask – how much liquid cash do you need?

I would say the key question to ask is how much liquid cash you need, to meet your spending needs the next 6 months.

Think about how much you need to spend.

Then think about how much cash you are expecting to come in over the next 6 months.

The difference is the amount of liquid cash you would need.

So if all of your spending needs are going to be met by your salary, or if a big bonus is coming in – then you can actually run very little liquid cash.

Whereas if you’re going to buy a house, a new car, or a big renovation, you’ll need to plan ahead and have that amount of cash set aside in liquid cash.

Some guidelines on liquidity – better safe than sorry

As a general note I would say don’t be stingy with liquidity.

It’s one of those where it’s better to be safe than sorry.

So after you run the analysis above – you’ll want to buffer for unexpected scenarios too.

For example a big medical bill that you need to pay upfront, then claim from insurance after.

A big car repair bill.

A decline in stocks that leads you to want to buy some stocks / REITs.

A loss of job, meaning no income in the short term.

Things like that.

As a general note I would say you always want to have enough liquid cash on hand to cover 6 months worth of expenses, as a worst case scenario.

Liquid Cash should go into options accessible on short notice – savings accounts, fixed deposits, money market funds

Once you have the number above.

That amount of liquid cash, should go into options that you can get back with ideally a day or two’s notice.

That will include:

1. High yield savings accounts (eg. UOB One, OCBC 360) – as a savings account you can withdraw any time
2. Fixed Deposits – can break anytime by telling the bank, although you will lose accrued interest
3. Money Market Funds – they are T+1 liquidity

I would say some Singapore Savings Bonds are fine as you can get the money back reasonably quickly, but don’t overdo it and put 90% of your liquid cash into Singapore Savings Bonds (because the money only comes back at the start of the next month).

Rest of the cash goes into highest yield options – based on your comfort level on risk

Once you have the above – the rest just goes into the highest yielding option.

As of today, that’s probably Fixed Deposits, T-Bills, or Money Market Funds.

But… how much cash to hold, vs stocks or REITs or real estate?

Do note that the discussion above only addresses where to put your cash.

It doesn’t address the question of how much cash to hold, vs stocks or REITs or real estate.

That’s a much harder question (that we try to answer on the rest of Financial Horse).

But long and short, I would say it depends on 2 factors:

1. Individual risk appetite
2. Market conditions

Individual Risk Appetite

Individual risk appetite is how much risk you can take.

If you’re a 62 year old approaching retirement, the amount of risk you can take is very different from a 25 year old starting his career.

Life goals matter too.

If you’ve saved up over a lifetime and finally have enough to afford a comfortable retirement, you may not want to put all that into high risk stocks and risk losing it all.

Whereas if your current capital is very low, you might not mind taking on higher risk for the chance to get great returns.

How much risk to take – only you can answer this question for yourself.

Market conditions

The other factor to consider is market conditions.

Yes I know this is market timing and all.

But I would say there are some times in markets like March 2020 or 2008/2009.

That as long as you have enough cash set aside for spending needs and contingencies, it probably makes sense to increase risk exposure given how cheap valuations are.

And vice versa.

But I know not everyone is comfortable with market timing, and some prefer to just dollar cost average regardless of market conditions.

In which case you can ignore this factor and focus on risk appetite above.

There have been huge moves in stock prices the past 2 weeks, with lots of opportunity in markets.

I just updated my stock and REIT watchlist on the names that I am keen to buy, do sign up for FH Premium if you are keen.

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