How much interest should you be earning on your cash?
Disclaimer: Please note that all content and information in this blog are for educational and informational purposes only and should not be taken as professional investment advice.
──────────────────
1. SDIC insured or SG government backed?
Generally, SDIC insured or SG government backed financial instruments, like savings accounts (SDIC insured) or T-bills (SG government backed) will give lower yields due to the lower risk involved.
2. Liquidity (e.g. daily, monthly, annual, non-withdrawable?)
Generally the more liquid, the lower the yield, because liquidity comes at a cost and therefore the rates for liquid cash is lower than illiquid cash. For example, long-term government bonds typically give higher yields than short-term bonds or even bank savings accounts.
3. Interest Frequency (e.g. daily, monthly, annual?)
Generally, the higher interest frequency, the lower the yield. For example, if a bank pays interest daily (e.g. GXS), compared to a bank which pays monthly (e.g. UOB), the bank which pays interest more frequently will pay a lower interest, all else being equal. Paying interest more frequently is an additional cost for the bank or financial institution, and as such, the interest will be lower to compensate for it.
4. Currency (SGD or foreign?)
Generally foreign currencies will pay higher yields than SGD due to the foreign currency risk. However, if the foreign currency is very stronger and tends to appreciate against the SGD over the long term (e.g. CHF), then it might pay a lower interest, subject to the country's monetary policy and economic climate. But generally, foreign currencies (e.g. USD, EUR) will pay higher interest than SGD due to Forex risk, so investors need to be compensated with higher interest for this risk.
5. Capital Loss Risk? (e.g. T-bills, money market funds)
Generally, cash which has the potential for capital loss will give higher yields due to the higher risk involved. Compared to cash investments which guarantee principal (e.g. savings accounts), cash investments like T-bills or money market funds which don't guarantee 100% capital (for early redemption), tend to give higher interest rates to compensate for this risk, all else being equal.
6. Any T&C to fulfill?
Generally, cash accounts with T&C to fulfill gend to give higher yields. For example, crediting salary, no withdrawal, minimum monthly top-up or MAB to maintain, etc. All these conditions come at a cost for investors and as such these accounts usually offer higher interest rates to compensate for the effort and inconvenience involved to meet all the conditions.
──────────────────
Disclaimer:
The content and information provided on this blog is solely for educational and informational purposes, and should not be construed as financial advice. The accuracy or completeness of the content and information provided in the blog cannot be guaranteed. Before making any investment decisions, it is important for readers to research and carry out independent verification of the information provided, or consult with a qualified financial professional. No warranty and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of actions taken based on the ideas or information found in this blog.
No copyright infringement intended. The images used in this blog are solely for educational and informative purposes, and are © copyrighted by their respective owners.
Copyright © 2025. All rights reserved. SN Finance Blog
Comments
Post a Comment