Where to park your cash in Singapore in 2024? Look at T-bills, SSBs and more

In Singapore, investors seeking safe and stable returns often turn to government securities like Treasury Bills or T-Bills.

With Singapore's interest rates at a high level, you need a secure place to invest your money. Between Singapore Savings Bonds, Treasury bills, also known as T-bills, bank deposits and cash management accounts, determining where to allocate your funds can be challenging. 

This article will analyse the pros and cons of each choice so you can decide what best fits your financial goals. Whether maximising returns or just safekeeping extra cash, read on to learn about the top options for investing your money in Singapore now.

What are Singapore T-bills?

T-bills are zero-coupon bonds, so they are issued at a discount to their face value, with investors receiving the full face value at maturity.

So if a one-year T-bill offers a 4% p.a. yield, you will in effect invest $960 (with $40 returned to your bank/SRS account as the discount). At maturity, you receive the face value of $1,000.

To participate in T-bill auctions, investors submit either a competitive bid or a non-competitive bid.

- Competitive bid: Bidding investors here, typically institutions, specify a yield. Only those who bid below or at the cut-off yield will be allocated T-bills at the cut-off yield.

- Non-competitive bid: Investors here only bid with an investment amount.

MAS allocates to non-competitive bids first, capped at 40% of the total issuance. The remaining 60% of the total issuance goes to qualifying competitive bids.

Singapore Treasury Bills (or T-bills) are short-term Singapore government debt securities. They are effectively IOUs issued by the Singapore government to raise funds. With a maturity of one year or less, T-bills allow you to invest and earn returns over the short term. 

When you buy a T-bill, you're essentially lending money to the Singapore government for a set period. In return, you'll receive the full par value of the T-bill when it matures, plus any interest earned. T-bills are issued through auctions by the Monetary Authority of Singapore (MAS).

T-bills are considered very low-risk investments backed by the Singapore government. This makes them an attractive cash parking option, especially in times of economic uncertainty. Plus, the interest you earn is exempt from tax.

Compared to bank deposits, well-timed T-bill investments could provide higher returns. With rising interest rates, T-bill yields have also been increasing lately. So keep an eye out for upcoming auctions.

Are T-bills a good investment?

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When it comes to parking your cash, T-bills or Treasury bills are considered one of the safest bets. These short-term debt securities issued by the US government have maturities under 1 year. Being backed by the full faith of Uncle Sam, T-bills carry virtually no risk of default. So you can rest easy knowing your principal investment is 100% secure.

Stable but low returns

However, that unbeatable safety comes at a price - relatively lower returns compared to riskier assets like stocks. T-bills typically pay interest rates below other fixed income products like bonds. Their yields reflect the minimal risk involved.

So while T-bills can keep your money safe from market volatility, the trade-off is lower growth potential over time. They're best suited for short-term cash needs rather than long-term wealth building.

Ideal liquidity

One key advantage of T-bills is their high liquidity. Being short-term instruments, they can be sold on the secondary market anytime before maturity. This makes T-bills a great option for an emergency fund that needs to stay accessible.

Some cash management funds like Endowus Cash Smart invest in T-bills alongside other short-term debt. This allows you to enjoy the safety and liquidity of T-bills in a professionally managed portfolio. Note: yields on cash management products, such as money market funds, are not guaranteed. 

What are the current interest rates?

The current interest rates for Singapore government securities are as follows:

• 6-month T-Bills: 3.74% (20 June 2024)
• 1-year T-Bills: 3.58% (18 April 2024)
• 2-year SGS bonds: 3.36% (29 May 2024)

These rates have been steadily rising from the record low rates of the recent decade, in line with the US Federal Reserve’s tighter monetary policy and higher interest rate environment. The MAS has also been tightening monetary policy and raising interest rates to manage inflation pressures.

How to open an account to buy T-bills?

To purchase Singapore government securities like T-Bills, you’ll first need to open an account with a primary dealer bank. The major local banks that act as primary dealers for Singapore government securities are:

• DBS Bank
• OCBC Bank
• United Overseas Bank (UOB)
• Standard Chartered Bank

You can open a bank account and securities account with any of these banks and submit bids for T-Bills through their Internet banking platform or ATMs.

Tax implications of government securities

Interest income from Singapore government securities like T-Bills is considered taxable income. You'll need to declare such interest payments when filing your income tax return.

However, there is no withholding tax deducted from the interest paid on Singapore government securities. You'll only pay tax upon assessment by the IRAS based on your total income and applicable tax bands.

What are SGS bonds?

SGS Bonds are debt securities issued by the Singapore Government. They are often considered one of the safest investments around, backed by the government's stellar AAA credit rating.‍

SGS returns

With SGS Bonds, you enjoy fixed coupon payments every 6 months until maturity. No matter how interest rates move, you'll always get back the full principal amount when your bond matures. 

Maturities range from 2 years all the way up to 50 years. So whether you need a short-term parking spot for your cash or a long-term investment, there's an SGS Bond for you.

Trading SGS bonds

You can buy SGS Bonds directly from monthly auctions run by the Monetary Authority of Singapore (MAS). The minimum investment is just $1,000.

Alternatively, many financial institutions and brokers offer SGS Bonds too. You can even trade them on the secondary market through banks like DBS, OCBC and UOB.

Tax-free interest

As if solid government backing and fixed returns weren't enough, the interest you earn on SGS Bonds is completely tax-free for individuals. So there you have it - safety, flexibility, and tax savings all rolled into one package. 

To purchase Singapore Government Securities, you will first need to open an account with a primary dealer bank. Here are the basic steps:

• To invest in SGS, select a primary dealer bank such as DBS Bank, OCBC Bank, UOB or Standard Chartered Bank. 
• Complete a Central Depository (CDP) sub-account application form, which will hold the securities, and submit identification and income documents for verification. The bank will open the CDP sub-account with an account number. 
• Fund it by transferring money from a linked bank account or with a cheque to CDP. Successful bids at auctions will credit securities to the CDP sub-account, debiting payment from the linked account. 
• At maturity, proceeds will credit the linked bank account automatically. Securities can also be sold before maturity via the primary dealer bank.

What are fixed deposits?

A secure investment option

A fixed deposit (FD) is a type of bank account that lets you lock away your money for a fixed period - say 3 months, 6 months or even a year. In exchange, you earn higher interest rates compared to a regular savings account. It's a safe, low-risk way to grow your cash savings.

How do they work?

When you open an FD, you commit to depositing a lump sum for the agreed tenure. The bank then pays you interest at a predetermined rate until maturity. Rates are usually higher for longer lock-in periods.

For instance, a 1-year FD may offer around 2-3% interest p.a. while a 3-month FD could be 1-2%. The longer you're willing to restrict access to your funds, the better the returns.

Pros and cons

The biggest pro is that FDs are capital guaranteed by the bank. You can't lose your deposited sum even if the bank fails. Interest rates are also fixed from the start, offering certainty.

However, FDs lack flexibility - you can't withdraw before maturity without penalties. Returns are also fixed, so you miss out if interest rates rise during the lock-in period.

Who are they for?

FDs suit investors with surplus cash who want stable, guaranteed returns and don't mind restricting access for a while. They make for a decent cash management option if you can let the money sit untouched.

However, for longer-term goals, FD rates may not beat inflation. More dynamic options like laddering Singapore Savings Bonds (SSBs) or Treasury Bills could allow you to capture rising interest rates better.

What are SSBs?

A safe investment option

SSBs or Singapore Savings Bonds are a safe and flexible way to invest your money and earn regular interest payments. These bonds are fully backed by the Singapore government, making them an incredibly low-risk investment option.

Key features

• Flexible tenure: SSBs have a tenure of 10 years, but you can redeem them anytime after the first 6 months at the original purchase price.
• Regular interest payouts: Interest is paid out semi-annually directly into your linked bank account (or SRS account if using SRS funds).
• Low entry point: You can invest as little as $500 in SSBs, with subsequent multiples of $500 (max $200,000 per issue).
• Wide eligibility: Available to Singaporeans and non-residents aged 18 and above.

An alternative to deposits

With rising interest rates, SSBs provide an opportunity to earn higher interest compared to bank deposits or fixed deposits. The interest rate on SSBs is reviewed every 6 months to adjust for inflation.

You can use the handy SSB Calculator to estimate your potential returns based on the amount and holding period. SSBs offer a convenient way to diversify your portfolio and earn risk-free returns.

Risks and considerations

Potential downsides

While cash management solutions aim to provide liquidity and preserve capital, there are risks investors should be aware of. Unlike bank deposits, many options like money market funds are not capital guaranteed, so there is a possibility of capital loss. The underlying securities can fluctuate in value based on market conditions and issuer creditworthiness.

Fixed deposits lock in your cash for a set period, with penalties for early withdrawals before maturity. They also carry deposit insurance limits per bank. Government-backed instruments like T-bills and Singapore Savings Bonds (SSBs) do guarantee your principal amount, but their prices can fluctuate if sold before maturity.

Managing Expectations

All cash management solutions have varying risk profiles, costs, and return potentials - it's crucial to understand their differences based on your goals and risk appetite. Higher potential returns come with higher volatility, while lower risk means lower yields. Advertised yields may also differ from actual net returns due to fees.

Additionally, past performance is not indicative of future results as market conditions can change. Having realistic expectations aligned with the solution's risk level is important to avoid surprises.

Diversification approach

To balance risks and returns, a prudent approach is to diversify across different cash solutions based on your liquidity needs and investment horizon. This could mean laddering T-bill or SSB maturities, combining fixed deposits with funds, or using a cash management portfolio to balance stability and growth potential.

The key is understanding the trade-offs of each option and building a diversified cash allocation strategy that provides flexibility, capital preservation, and stable income aligned with your broader financial goals.

How to buy T-bills in Singapore:

Purchase options

As an individual investor, you've got two main options to buy T-Bills:

1. Auctions: You can submit bids directly at the T-Bill auctions conducted by the Monetary Authority of Singapore (MAS). Both non-competitive (no yield specified) and competitive (yield-based) bids are accepted.
2. Secondary market
3. ‍If you miss an auction, you can still buy T-Bills from primary dealers on the secondary over-the-counter market after issuance.

‍Auction process

Auctions follow a simple process - announcement of details, bidding, results and issuance. The issuance calendar lists upcoming auction dates, usually announced 5 days prior.

You can submit bids through internet banking or ATMs of DBS/POSB, OCBC or UOB. Bids are settled T+3 days after the auction. Check with your bank for cut-off timings which are typically 1-2 days before the auction closes.

Redeem at maturity

T-Bills are automatically redeemed at maturity. The redemption amount is the face value plus the final interest payment. You do not need to take any action to redeem the bills. On the maturity date, the redemption proceeds will be credited to your bank account that was used for the initial purchase.

Before maturity

If you wish to redeem before the T-Bill matures, you'll need to sell the bills on the secondary market. This involves:

1. Contacting a primary dealer to find out the current market price of your T-Bills based on prevailing interest rates. Prices will be below face value if interest rates have risen since your purchase.
2. Negotiating the sale price with the primary dealer and agreeing on the transaction.
3. Settling the trade, usually 2 to 3 days after the trade date. The primary dealer will transfer funds to your bank account, minus any applicable brokerage fees.
4. The buyer of the T-Bills will then hold them till maturity to receive the full face value.

Redeeming before maturity involves some complications and costs. So it's best to only do so if you have an urgent need for the funds. Otherwise, it makes more sense to simply hold the bills till the full maturity date for hassle-free redemption.

Looking for different cash management options

With interest rates rising and inflation surging, parking your cash in Singapore is looking trickier in 2024. T-bills, SSBs, fixed deposits and cash management accounts can still offer decent yields with balanced safety, liquidity and returns. The future may be uncertain, but you can still find places to stash your cash. 

If cash management products are relevant for you, they can be considered, though it should be noted that they are not guaranteed. Cash portfolio managers invest in Singapore government bonds, often better than savings bonds. Securities like MAS bills are common investments.

We provide daily access and higher returns while benefiting from rising rates. Consider investing beyond low-risk cash not keeping up with inflation. Consider your long-term goals and potentially invest in investment-grade or global stocks. 

At the end of the day, the current pain reflects that from the scourge of inflation, caused today by a complex mix of factors. But your investing journey today should still be aimed at bringing peace of mind, so you can be unencumbered by the noise and rest easy. 

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