This article is written in collaboration with DBS. All views expressed are the independent opinion of DollarsAndSense.sg
When investing, many people aim not only preserve their wealth, but also to grow it. There are multiple ways for you to grow your wealth in Singapore. You can pick stocks or bonds, start a regular shares savings plan, invest in funds, invest with robo-advisors or simply leave your money in a high interest savings account.
Key considerations when it comes to investing your money include your risk appetite, investment horizon as well as investment goals.
In this article, we will be looking at three ways for us to grow our money, namely through an endowment plan, fixed deposit and the Singapore Savings Bonds.
Buying An Endowment Plan
Endowment plans are targeted at helping people to meet specific financial goals in the future, such as paying for your child’s education or funding your retirement.
In Singapore, there are many different types of endowment plans available. Each of these plans have different features, risk, coverage, maturity timelines and premiums.
When you choose to buy an endowment plan with a regular premium, you are committing to save and contribute a predetermined amount of money each month or year towards your goal. This regular contribution is good for some people as it helps you diligently save up.
Alternatively, there are also some endowment plans which provide you with the option to make a single-premium contribution. In other words, you can choose to make a one-off lump-sum contribution to the plan and to hold it till maturity.
When taking up an endowment plan, you should hold it till maturity. Early termination of the plan may result in financial losses. Hence it is important to choose an endowment plan that that you can commit to and a maturity period which suits your needs.
The investment horizon tends to be longer when it comes to endowment plans. Most endowment plans will have an investment horizons of 10, 15 or 20 years.
For those looking at a shorter investment horizon, the SavvyEndowment 1 is DBS’s first ever, fully-digital single-premium endowment plan. This 3-year endowment plan provides basic life insurance coverage in addition to the maturity bonus.
Upon the maturity of the plan, there is both a guaranteed maturity value equivalent to 103.5% of the single premium, as well as a non-guaranteed maturity bonus which is dependent on the performance of the participating fund.
For example, if you invest a single premium of $10,000 over a period of three years, your guaranteed maturity value after 3 years is $10,350. If the par fund achieves an investment rate of return of 2.64% p.a., you will receive $10,681, or a yield-to-maturity of 2.22% p.a.
If the par fund generates a lower investment rate of return of 1.39% p.a., the yield-to-maturity will be lower at 1.15% p.a., which in turn translates into a maturity value of $10,350.
Penalty For Early Termination Of Plan
As shown in the table below for SavvyEndowment 1, early termination in year 1 or year 2 would result in you receiving less than the initial payment you put into the plan.
With a 3-year maturity period, this is a relatively short investment horizon particularly for an endowment plan. The perks of having a shorter maturity period is, you can use this to achieve short-term financial goal such as paying the downpayment for your BTO, saving up for your wedding and buying a car.
The minimum investment amount for this single-premium plan is $5,000, a reasonable minimum sum for most young working adults. The premiums for this product is paid as a single payment.
Getting A Fixed Deposit
Fixed deposits are an alternatives to endowment plans. While there are many savings accounts that offer higher interest rates, these savings accounts also require you to carry out multiple transactions to be eligible for the high interest rates. Fixed deposits on the other hand are straightforward and do not require you to jump through loops.
Fixed deposits are a good option for those that are looking to park their funds for a specific period of time. For example, when you sell your house or sell your car, fixed deposits could be a good vehicle to hold that large sum of cash during the interim period before you channel these funds into your next investment.
The investment horizon for fixed deposits typically ranges from 1 year to 5 years. Looking at the fixed deposits offered on DBS, the current interest rate is 1.40% per annum.
Source: DBS (Rates as of 14 May 2019)
There is no limit to how much money an individual can have in fixed deposits, making fixed deposits a good option for those with large sums of money.
Subscribing To Singapore Savings Bonds
Singapore Savings Bonds (SSBs) are bonds issued by the Singapore government. First offered in 2015, SSBs have become more popular in recent times.
SSBs are risk-free, offering investors modest returns with interest being paid out twice a year. The bonds can be purchased in denominations of $500 and the current limit for an individual to have in SSBs is $200,000.
SSBs make a good bond investment option for investors that are looking to diversify their portfolio, particularly investors that have a portfolio that is heavy in stocks.
SSBs also provide investors with liquidity. You can withdraw your SSB investments at any time without any early withdrawal penalties. However, there is only one redemption period per month. As redemption proceeds are paid out by the end of the 2ndbusiness day of the following month, it could take anything from 5 days to up to a month for you to receive your SSB money, depending on when you submit your redemption request.
When putting your money into SSBs, you are looking at an investment period of 1 to 10 years. One of the important things to note is that while you can withdraw your money from SSBs at any time, the interest rate you earn is significantly higher towards the end of the investment period.
Source: Singapore Savings Bond Website
For example, in the latest issue of SSBs for June 2019, you will receive 1.88% interest per year in year 1 compared to 2.13% interest per year if you hold your SSBs for 10 years. Hence, while SSBs offer liquidity, holding your SSBs for the full 10 years would allow you to maximise the interest rate of your returns.
SSBs have also become a popular investment option for DBS Multiplier Account users that are looking to make regular investments to meet the investments transaction category of their account.