Singapore fixed deposit and money market funds: Grow your idle cash (Nov 2024)

Best options to grow your short-term cash savings in Singapore

The official start of the rate cut cycle has been initiated as the US Fed funds rate was lowered during the September FOMC meeting, bringing it down from its highest level in 22 years. It is anticipated that further rate cuts will follow.

Despite the economy displaying more resilience than anticipated, there are still various factors that pose uncertainties, including geopolitical risks and the new US President and resultant interest rate and foreign policy changes.

If you are seeking to earn yields on your idle cash while interest rates remain above 4%, continue reading to discover the distinctions between money market funds, bank fixed deposits, and Singapore T-bills. Find out which option is most suitable for you.

Overview of best fixed deposit rates in Singapore (Nov 2024)

Overview of yields earned on money market funds available on Endowus

What is a money market fund?

A money market fund is a mutual fund that invests in high-quality, short-term debt instruments and cash equivalents. These investments typically include Treasury bills (T-bills), commercial paper, and certificates of deposit (CDs), which are known for their liquidity and low risk. Money market funds are designed to offer investors a relatively low-risk place to invest easily accessible cash while earning a modest return. 

What are fixed deposits and what do the rates mean?

A fixed deposit is an interest-bearing bank account that has a pre-set maturity date, meaning it can only be withdrawn after the predetermined set duration. For instance, if the fixed deposit rate in Singapore is stipulated to be 3.40% for a period of 3 months, it means that the deposited cash in the account will earn an interest rate of 3.40% per annum, pro-rata to 3 months’ value and can only be withdrawn after 3 months, subject to bank deposit withdrawal policy and penalty.

What are Singapore T-bills?

Singapore Treasury bills (T-bills) are short-term Singapore Government Securities (SGS) which are sold for less than their nominal or face value. When T-bills mature, investors receive the full face value, earning the difference as interest (ie. T-bills interest rate). The two different types of T-bills issued by the government are 6-month and 1-year, respectively. 

Latest market commentary (Nov 2024)

Trump's re-election as the US president has sparked speculation about its implications on the markets. In our view, the potential outcomes of Trump's second term could lead to higher inflation, increased interest rates, and a stronger US dollar. However, the actual delivery of Trump's promises remains uncertain.

In addition to Trump's second term on the horizon, the US Federal Reserve announced a 25 basis points cut last week. As the presidency changes hands, the upcoming FOMC meetings will be closely watched for any potential shifts in monetary policy. Although the markets are currently experiencing volatility, similar to what has been observed after past US elections, Fed Chair Jerome Powell stated that it is too early to draw any conclusions about the economic impact of Trump's presidency.

We are just a few weeks away from the final Federal Reserve meeting on 18 December, and the futures market is currently indicating a moderate probability of a 25 basis points interest rate cut to 4.25-4.50%, with a 65% likelihood, according to CME Group. However, there is also a remaining probability that suggests the possibility of a pause in rate cuts. 

This forecast follows rate cuts announced in both Sep and Nov meetings, which brought the rate to a range of 4.5-4.75%. Meanwhile, want to make your idle cash work hard for you while the interest rates remain above the 4% level? Here are your next best moves. 

Money market funds in Singapore: What are your next best moves?

Depending on your risk tolerance and investment objectives, a list of cash management or liquidity funds is available on our Fund Smart platform for you to earn more on the value of your cash. Or, you can consider our diversified Cash Smart Portfolios that allow you to earn yields. Either way, there are no penalties on fund or portfolio redemptions.

More importantly, enjoy daily liquidity for full flexibility. The money market funds on the Endowus platform are well diversified and enable you to take advantage of high yields in the current environment while minimising concentration risks to single issuers.

We have these solutions available in SGD, USD, and other major currencies. With Endowus, you can invest in funds and advised portfolios using Cash, CPF, or Supplementary Retirement Scheme (SRS) savings. Endowus also has corporate cash solutions, which you can find out more about here.

Net yields as of 1 November 2024 now range from 2.79% to 3.43% p.a. for  SGD cash management funds and 4.53% to 4.80% p.a. for USD cash funds available on the Endowus platform.

Cash management solutions on the Endowus platform

Here are the key money market or liquidity funds available on the Endowus platform:

• Fullerton SGD Cash Fund
• LionGlobal SGD Money Market Fund
• United SGD Money Market Fund
• LionGlobal SGD Enhanced Liquidity Fund (*ultra-short duration)
• Fullerton USD Cash Fund 
• Amundi Cash USD Fund

As with all investments, investors are reminded that putting your money into money market or liquidity funds come with some degree of risk, and that the yield is not guaranteed. If you do not wish to be subject to the risk of capital loss, we recommend you to consider capital-protected vehicles such as bank deposits, or government-backed instruments such as Singapore Savings Bonds (SSBs) and Treasury bills (T-bills). To find out more about each fund’s historical track record, click on the fund names above.

Bond yields vs returns — what’s the difference?

Many of the cash management funds highlighted above invest primarily in fixed-income securities, which include bonds. 

Simply put, fixed-income securities are debt instruments. An investor lends money to the issuer (basically, the borrower), and in return the investor receives coupons — or interest payments — on a regular basis. Entities that issue bonds include governments and corporations.

By investing your money in a fund that includes fixed-income securities, you are essentially lending your money to the issuers that the fund management company has chosen based on its analysis.

Here are quick definitions of yields and returns in this context:

• Yields: These refer to the payouts — that is, the interest payments — generated by a fixed-income security. Yields are based on the total annualised future returns that you would have received by the end of the security’s tenor (i.e. reflecting all the payments you would’ve received by maturity).
• Returns: These are generated by the increase or decrease in the value of a fixed-income security during the lifespan of the security. Returns are based on what you would have already earned up to the present day if you were to sell the security today.

A fundamental difference between yields and returns lies in the timeframe.

To illustrate this, let’s use a simple example of a one-year bond. You invest $1,000, which is the principal amount, in the bond of Company X and the company promises to repay this sum plus 5% interest (yield) at the end of one year. After a year, you would have earned a 5% return in total. 

In other words, as long as (i) you hold your fixed-income security until it matures, and (ii) the borrower does not default on the debt — the yield is very likely to be the total return you will earn. This is why yields are important in assessing the implied future return of cash management funds (and even longer-duration fixed income funds).

This scenario, of the yield equating to the return, changes when you choose to trade the bond. 

Let’s say the same Company X runs into financial difficulties. You’re not willing to stomach the increased risk of the company failing to repay the principal by the maturity date or missing the interest payment. Therefore, you decide to sell your bond investment in the secondary market. There, you are quoted a trading price that will mean you sell the bond at less than the principal of $1,000. If we assume this sum to be $900, that means you incur a loss of $100, or a return of -10%.

In other words:

• You would care about the “return” if you trade the fixed-income security before it matures.
• The value of fixed income securities is subject to various factors, including the financials of the companies, or even the broader market environment. Put simply, this value is what you will get if you choose to sell the security to a third party.
• This value changes on a daily basis, and is reflected as the returns.

Comparing fixed deposits, T-bills, SSBs, and cash management funds

The world of cash management spans a wide variety of yield enhancement products. Investors in Singapore who are looking for a higher interest rate may turn to fixed deposits from Singapore banks, Singapore government Treasury bills (T-bills), Singapore Savings Bonds (SSBs), or unit trusts, for example.

However, it is important for investors to have a clear understanding of the pros and cons of each of these instruments — they often come with trade-offs involving yield, lock-ups, duration, minimum or maximum investment amounts, and transaction fees. 

And if you’re looking to invest your CPF Ordinary Account (OA) savings, bear in mind that not all cash management products are available for OA investments.

The table below shows key details about Singapore fixed deposits, T-bills, SSBs, and cash management unit trusts on the Endowus platform, including the latest available information on their yields (as of the time of writing). For fixed deposits, please note that the range of current yields should be taken as a guide only, given that fixed deposit interest rates in Singapore change frequently.

‍An overview of key cash management products available in Singapore

The smart and flexible way to earn more on your cash

Looking to build your own investment portfolio? The Fullerton SGD Cash Fund, with a net yield of 2.87% p.a.*, could be a great addition depending on your risk tolerance and investment objectives. You can add it to your portfolio by following these steps. 

Depending on your investment objectives and risk tolerance, Cash Smart Secure is another good option, with projected yields ranging between 2.9% and 3.2% p.a**. Cash Smart Enhanced is available as well for investors who are willing to take more risk relative to the Cash Smart Secure solution. Critically, Endowus offers our cash management solutions at fees of 0.15%^ (as of 1 May 2024), making our offerings highly competitive for your low-risk investments. This is on top of our longstanding practice to rebate any trailer fees back to our clients. Learn more about our Cash Smart offerings here.

Make your cash work smarter for you. If you have money set aside for an upcoming expense, earn higher returns on it instead of letting it sit idle in your current or savings account. To get started with Endowus, click here. 

*As of 1 November 2024. Net yield after deducting fund-level fees and Endowus access fee, and adding back rebates. Note: The Endowus Fee is subject to GST from 1 April 2023 onwards. Source: Endowus Research, Fullerton Fund Management.

**As of 1 November 2024. Net yield after deducting fund-level fees and Endowus access fee, and adding back rebates. Note: The Endowus Fee is subject to GST from 1 April 2023 onwards. Source: Endowus Research, Fullerton Fund Management, Lion Global Investors

^ Cash management solutions charge a fee of 0.05% and the increase to 0.15% will be effective 1 May 2024

Read more:

• What should I do with my cash now?
• Should you invest your CPF money in T-bills?
• Seeking higher yields for your corporate cash management needs
• A focus on fixed income — curated bond funds (Fund Digest)