It’s not surprising that more people are leaning towards investments that are safer today. The financial markets are extremely volatile, and rising interest rates have increased the returns on even the safest investments. However, there aren’t many investments that provide guaranteed principal and returns in Singapore.
For certain investments that claim to pay guaranteed returns, you need to weed out the potential scams – i.e. investments that sound too good to be true. You can refer to the MAS Investor Alert List, which provides a list of unregulated persons or companies as a first layer of check. Note that if a company is not on the list, it doesn’t mean that it is not a scam.
One other thing to understand is that when you enjoy such safety in your investments and visibility in your investment returns, you need to be prepared to accept a relatively lower rate of return that is closer to the risk-free rate.
What Is Risk-Free Returns?
The risk-free return refers to a rate of return that you can expect to achieve even if you don’t take on any risk. Theoretically, there’s no such investment as there will always be some form of risk that we take on when making an investment.
Below, we look at six types of investments that you can put your money into which 1) guarantee your principal and 2) provide a guaranteed return on investment as well. This can be a good way for those who are extremely risk-averse or unsure about investing to get started. Such investments can also act as a springboard to start investing in riskier investments.
As mentioned, in the heightened interest rate environment today, you can find relatively decent returns on your investments as well.
#1 Singapore Government Treasury Bills (T-Bill)
A good proxy for the risk-free rate in Singapore is the returns that the government of Singapore, one of the few triple-A-rated economies in the world today, pays on its 6-month or 1-year treasury bills. Treasury bills or T-bills are the shortest-term government securities available.
The latest issuance of a 6-month T-bill in early October 2023 offered a cut-off yield of 4.07% per annum. The latest 1-year T-bill was offered in August 2023, paying an interest of 3.74% – a slightly lower interest rate.
Treasury bills are typically useful for investors who are looking for very short-term investments of between six months to one year, without taking on much investment risk.
#2 Singapore Government Bonds
The Singapore government also issues longer-termed bonds, between 2 years and 30 years. These bonds typically pay higher returns than shorter-termed T-bills. With all things equal, a bond with a longer maturity is typically deemed to carry more risks than the same bond with a shorter maturity period. Nevertheless, it is also regarded as close to risk-free and hence offers a rate of return that is close to the risk-free rate as well.
However, in the current interest rate climate, shorter-termed bonds are paying marginally higher interest returns, while longer-dated bonds are paying lower interest returns.
According to the Yield Curve depicted on the MAS website, Singapore Government Bonds should be paying these rates. As you can see in the table below, the longer the bond term, the lower the yield would be – again, this is contrary to what the typical yield curve should look like.
|Singapore Government Bond Term (Tenor)||Yield (p.a.)|
In September 2021 the government issued the first tranche of its SINGA bonds to finance major long-term infrastructure projects, such as new railway lines, coastal protection projects and other infrastructure projects that will benefit current and future generations of Singaporeans. SINGA bonds are also considered Singapore Government Securities (SGS) bonds. The Singapore government also launched a 50-year Green SGS bond in August 2022.
#3 Singapore Savings Bonds (SSB)
By now, you would have noticed a recurring theme. The investments that are most likely to guarantee your capital and your returns are bonds issued by the government.
First launched in October 2015, the SSB pays a step-up interest rate each year, up to the 10th year. What this means is that the bonds pay a lower return in the beginning years, and if investors do not redeem the bond, it continues to pay a higher rate each year, until the 10th year. This is primarily to recognise the fact that investors are holding the bonds for a longer-term.
Here is the rate of each SSB issue, if you held it for the full 10-year time frame, since its inception in October 2015.
In general, the SSB offers superior liquidity, allowing investors to redeem it at any point without worrying about its market price. This usually means that the SSB should pay out similar, but slightly lower, interest rates than other comparable government securities that do not offer this feature.
As depicted in the chart above, the SSB interest rate yields was on a downward trajectory since the start of 2019, but have since climbed strongly along with the inflation rate and Fed rate hikes. The latest SSB issue in October 2023 is offering a 10-year yield of 3.32% per annum. If you hold the SSB for only one year, you can still earn 3.21%.
Interestingly, the 1-year SSB rate in the October tranche is higher than the 10-year average return for the September tranche. This truly speaks to the “higher for longer” interest rate environment we live in today.
#4 Fixed Deposits
Although not commonly referred to as an investment, fixed deposits offer you a way to earn better returns on your money rather than leaving it in a savings account or under your pillow. As a reference, the three local banks in Singapore are currently offering the following Singapore-dollar fixed deposit rates.
|Bank/ Tenor||12 months p.a.||24 months p.a.||36 months p.a.|
Of course, there are many other banks offering their own fixed deposit schemes as well as promotional rates which can be significantly better than the board rates. Many of them, including the three above, may come with certain conditions you have to fulfil to achieve the promotional rates.
Looking at the figures on offer, DBS is offering the best board rates on fixed deposits. It also certainly looks like OCBC’s board rates have not kept up with the other two banks. Do note that these are based on board rates, and individual banks may offer promotional rates which may be more competitive as well.
In addition, deposits with all full banks and finance companies in Singapore are covered under the Singapore Deposit Insurance Scheme, insuring up to $75,000 of your deposits in each account. This is set to rise to $100,000 in April 2024. All full banks and finance companies in Singapore, a total of 37 are listed on the SDIC website, are members of the Singapore Deposit Insurance Scheme.
#5 CPF Top-Ups
To earn better interest returns, you can also consider making CPF top-ups into your Special Account (SA) via the Retirement Sum Topping-Up (RSTU) Scheme. These funds are guaranteed by the Singapore government and offer a minimum guaranteed return of 4.0% p.a. Today, the Special Account interest rate has risen to 4.07%.
You can also make Voluntary Contributions (VC) into your Ordinary Account, Special Account and MediSave Account.
Moreover, the first $60,000 of your CPF monies, with up to $20,000 in your CPF Ordinary Account (OA), will earn an additional 1.0% p.a. in interest returns. This means your top-ups may earn up to 5.0% p.a. if you top-up your CPF SA in the early years.
You also stand to receive up to $8,000 in tax reliefs when you make RSTU top-ups into your CPF SA, as well as an additional $8,000 in tax reliefs when you make cash-ups into a loved one’s CPF SA. No tax reliefs are provided when you make Voluntary Contributions to your CPF accounts.
However, before you do this, you need to know that unlike the investments listed in this article, which can be sold or redeemed early (notwithstanding that you may lose some value when you do this), topping up your CPF SA is irreversible. You will only receive it once you hit 65 in the form of monthly CPF LIFE payouts, rather than in cash.
#6 Savings Plans
Savings plans, offered by insurance companies, especially those that are non-participating in nature, are able to guarantee your capital as well as returns. You should also note that savings plans that guarantee your capital but do not guarantee returns also exist.
When investing in a savings plan, you are typically required to lock your money over a fixed period of time or continue contributing over a fixed period of time. Not doing so may see you losing a substantial amount of the returns you expected to receive, if you are unsure about your liquidity needs for the funds you are investing.
These plans are also covered by the Singapore Deposit Insurance Scheme in Singapore and may also offer an insurance component that pays out in the event something unfortunate happens to you.
Moving On To Investments With Greater Risks
Once you’ve built a foundation or started your investing journey, you will have more knowledge and courage to make riskier investments. Riskier, but still relatively safe, investments, such as cash management accounts and/or Corporate bonds may provide a competitive return for your spare cash while still providing a high degree of liquidity.
As you progress in your investing journey and understand that taking calculated risks over the long-term can be financially lucrative, globally-diversified stocks portfolio, properties and other alternative investments may become investment options that are able to deliver significantly higher returns.
This does not mean you stop being prudent with your investments. In fact, quite the contrary, as you need to be even more prudent when you’re embarking on riskier investments. Many of these riskier investments are volatile and require you to be able to stomach, and ride out, wild price swings at times to earn good returns over the long term.
This article was first published on 16 January 2018 and updated to reflect the latest expected investment returns.
Get The Latest Bite-sized Investment News, Ideas & Insights
It's free! Don't miss out on the latest financial market movements. FSMOne aims to help investors around the world invest globally and profitably, follow FSMOne’s Telegram for bite-sized finance analyses and exclusive happenings.