This article is written in collaboration with FSMOne.com. Views expressed in the article are the independent opinion of DollarsAndSense.sg.
Last year, FSMOne launched a new product – FSM Auto-Sweep Account – which is being described by the company as a cash management solution that serves as an alternative parking facility to the FSM Multi-Currency Cash Account.
With its ability to earn potentially higher interest rate at no additional effort required on the part of investors, the FSM Auto-Sweep Account would be an attractive proposition for many investors, particularly existing FSMOne users.
But before you make a decision on whether or not you should open and choose this cash management account, it’s important for you to first understand how it works and whether it provides an investment solution that you are looking for.
#1 Earn Interest On Your Unused Investment Monies
A common problem that many investors face is the challenge of earning interest on unused investment monies – money set aside for investment purposes but have yet to be invested.
This could be money from your savings account which are set aside for future investments, income received from your existing investments (e.g. dividends, coupon payments) or sales of proceeds that you receive when an investment matures (e.g. you receive your principal capital from a bond which matures).
Very often, when we have this money, we don’t deploy it immediately for our investments as we would prefer to wait for the right opportunities to invest. However, the problem with holding cash is that it earns you no interest at all.
What the FSM Auto-Sweep Account does is that it automatically ‘sweeps’ your unused investment monies into a discretionary portfolio which is managed by FSM. The aim of this portfolio is to ensure that your idle money is able to earn a higher interest than simply leaving it as cash – which provides zero returns, or in a savings account that provides very low interest rates.
It’s important to note that you have to be an existing FSMOne Account user before you are able to activate and opt for Auto-Sweep Account enrolment.
#2 What Is Being Invested Via The Auto-Sweep Account?
This account is technically an investment portfolio, and not a savings account. The interest you earn is made possible by the returns generated by the assets within the portfolio. FSM does not pay you interest out of its balance sheet. Rather, what they do is to help you manage your unused investment monies.
A quick glance at the portfolio for the Auto-Sweep Account reveals that this is a very low-risk portfolio constructed using short duration bonds (i.e. bonds which are maturing soon and whose values will not be impacted much by interest rates movement), money market funds and a small percentage held in cash (to maintain liquidity for the fund).
As shown above, in this Auto-Sweep portfolio, the Fund Houses involved are LionGlobal, a member of the OCBC group, and Fullerton, a subsidiary of Temasek Holdings. These funds were carefully selected for their ability to provide yield and stability.
FSM will manage the fund on behalf of all investors to ensure that it achieves the fund objective, which is to earn a higher return than the Cash account while maintaining a high level of liquidity and capital preservation. So, while it’s good for you to know what’s in this portfolio, there is no action required on your part.
A small management fee of 0.05% per quarter is charged.
#3 What Are The Returns That I Will Get?
Since its inception in July 2019, the latest net yield of the Auto Sweep account is reported by FSM as 0.974% p.a. (updated as of 22 June 2020).
Source: FAQ, FSM Auto-Sweep Account
Since the interest returns of the assets which the funds are invested into will vary, the net yield reported may also change on a weekly basis.
For example, back in December 2019, when interest rate levels were generally higher, the net yield of the fund was at 1.364%.
All interest earned from the underlying funds will automatically be reinvested.
#4 You Can Invest The Funds In The Auto-Sweep Account Anytime You Want
Similar to the FSM Cash Account, you are able to immediately invest the funds from your Auto-Sweep Account on all types of investment products offered by FSM anytime you want. These include stocks, bonds, ETFs and unit trusts.
Just like any other savings or prefunded investment account that you may have, the ability for you to deploy funds from this account to make investments will never be an issue.
Apart from being a convenient payment method for investments on FSMOne, the commission rates for stocks and ETFs are also kept low at 0.08% for Singapore, Hong Kong and US Markets.
#5 Auto-Sweep Account Can Be Used To Invest In Foreign Currency Investments
The Auto-Sweep Account is a Singapore Dollar (SGD) cash management account. This means it only holds cash and make investments which are denominated in SGD. There is no foreign exchange risk involved.
You can however still invest directly in foreign currency products such as stocks, mutual funds or ETFs which are non-SGD denominated. A conversion rate will automatically be shown so that you will know how much an investment will cost you (in SGD) after foreign currency conversion.
Allowing Investors To Earn Enhanced Interest Rates
With the Auto-Sweep Account, FSM users can use their unused investment monies to earn returns that are comparable to these financial products.
Savings accounts: There are savings accounts in the market now that rewards customers with relatively high interest rate returns, though this have been reduced in recent months. However, in order to enjoy these high interest rates, customers have to carry out numerous transactions. This includes crediting your salary, paying bills, using the bank’s credit card, investing and more.
With the Auto-Sweep Account, investors can earn reasonable returns on their unused monies, without having to jump through hoops.
Fixed deposits: Fixed deposits are a low risk investment instrument that provides guaranteed returns. However, fixed deposits lack liquidity as investors have to lock in their capital in order to enjoy the contracted interest rate.
The Auto-Sweep Account offers investors interest rates comparable to fixed deposits, while providing liquidity as investors can use the money to invest at any time. Additionally, FSM users only need a minimum of $50 deposited in the Auto-Sweep Account to get started.
Do note however that unlike savings accounts which are insured under the SDIC, the Auto-Sweep account isn’t covered as it isn’t a savings account.
The Auto-Sweep Account Allows You To Hold On To The Advantages Of Cash (Without The Disadvantage)
As an investor, the main reason to use the Auto-Sweep Account is because you want to enjoy the advantages that cash gives you. This means 1) enjoying capital preservation on your unused investment monies if the market doesn’t perform well and 2) having the funds on hand to seize good investment opportunities whenever it surfaces. The Auto-Sweep Account allows you to achieve both of these.
At the same time, the opportunity cost of holding on to cash for a prolonged period of time is also a real challenge that investors face. By helping its users to deploy unused investment monies into the Auto-Sweep Account, FSM users can now earn higher interest on idle cash which are not yet invested.