Savings advice

[cheeyen]

Hi,

I'm new to savings/investing, managed to save 10k which is for the emergency fund.

As I understand by placing this money in my savings, I will get poorer due to inflation, I've read up about other financial instruments such as money market fund/deposit etc.

Therefore I would like to seek advice from you guys to see which financial instrument should I place this emergency fund into to at least get a better rate?

Thank you so much!!

 

[FreDeRicK]

Since you only mentioned this as an emergency fund, I assume that you do not have any other savings. If so, I would recommend that you keep this amount (ideally 3-6 months worth of income) aside as liquid cash -> in savings, or at most fixed deposit, having as low risk as possible.

Invest only additional savings that you have, after putting aside your emergency fund.

When you intend to do any investment, you need to consider how long you can do without touching that amount of money (time horizon) and your risk appetite.

 

[cheeyen]

Since you only mentioned this as an emergency fund, I assume that you do not have any other savings. If so, I would recommend that you keep this amount (ideally 3-6 months worth of income) aside as liquid cash -> in savings, or at most fixed deposit, having as low risk as possible.

Invest only additional savings that you have, after putting aside your emergency fund.

When you intend to do any investment, you need to consider how long you can do without touching that amount of money (time horizon) and your risk appetite.

Hi Frederick,

Thanks for the advice, yep this is meant for my emergency fund, so I was thinking of putting it in either FD or Money Market Fund, but not really sure whether MMF has better rates or as stable as compared to FD.

I guess I shall place this amount into FD since is better than in savings.

Thank you!

 

[Darkzi0n]

r u working?
is ur family financially dependent on u?
do u need to use that 10k in anyway in the near future? eg, if ur family member were to be hospitalised, do u need to help pay for it?

if ur ans is no to all the questions above, eg, a student, i dun think there is a need for emergency fund.. and u can afford to put ur money in higher risk..

but if u r not, den i suggest u keep the emergency fund as liquid as possible... for eg, if u need the money now, u can retrieve it immediately.
then save up more before u think of investing.. meanwhile u can start reading up on investments. u can start with investopedia

 

[FreDeRicK]

Of course this is purely my own opinion.

The reason is, savings / FD is covered under the Deposit Insurance Act. Your emergency fund should fulfil its purpose -> immediate cash when needed.

 

[cheeyen]

r u working?
is ur family financially dependent on u?
do u need to use that 10k in anyway in the near future? eg, if ur family member were to be hospitalised, do u need to help pay for it?

if ur ans is no to all the questions above, eg, a student, i dun think there is a need for emergency fund.. and u can afford to put ur money in higher risk..

but if u r not, den i suggest u keep the emergency fund as liquid as possible... for eg, if u need the money now, u can retrieve it immediately.
then save up more before u think of investing.. meanwhile u can start reading up on investments. u can start with investopedia

Hi Darkzion,

I'm working already, and yes I will need to keep it as liquid as possible since is for my emergency fund, just that would like to explore other flexible options besides placing this amount in my savings which the interest is super low.

Therefore I'm thinking whether FD is good enough, or there's other recommendations which is as liquid and have better % rates than savings/FD.

Thank you!

 

[kebinu]

A less than $100 difference a year no matter where you put it.

Bank is super liquid, anytime when you need it. If you place it in FD or anywhere else, you have to spend another working day to get it out.

Again, not much difference imo.

 

[cheeyen]

A less than $100 difference a year no matter where you put it.

Bank is super liquid, anytime when you need it. If you place it in FD or anywhere else, you have to spend another working day to get it out.

Again, not much difference imo.

Hi Kevin, thanks, will take your words into account as well

 

[Epps_Sg]

My personal feeling is that emergency fund needs to be liquid also. Anything beyond your emergency fund, or even part of the emergency fund, can be in low volatility bond fund also. selection of bond fund is important - to reduce volatility and avoid significant loss, should select funds with mainly quality sovereign bond (reduce chance of default), short term bonds (reduced exposure to interest rate). Minimise corporate bond (higher chance of default) exposure and avoid exposure to high-yield / emerging-markets bond (much higher chance of defaults) in this case.
An example of low volatility bond fund that survived well even in 2007/2008 is here.
When investing, please make sure you have investing plan.

 

[lzydata]

As others have said, emergency funds must be readily available in full for emergencies, so a simple bank savings deposit will be the best. Also, you should not be taking much risk with it, so no stocks and nothing illiquid.

You can actually put it in a FD if you do not mind forfeiting the interest should you have to withdraw prematurely, but I have not done it before so I am not sure if there will be delays. Preferably it should also be in a convenient bank too, but if you like to get a bit more interest with your money, you can try CIMB's 0.8% pa account. They have only 2 branches. Other options are OCBC's Bonus+ account: effective 0.6933% pa if no withdrawals, minimum $10k.

Some time back there was a debate here about whether money market funds such as Phillip's were suitable places for emergency funds. Their website quotes a 1-year return of 0.57%. I was not in favour because of potential liquidity issues, because it is not covered by deposit insurance, and because money market funds have run into trouble before during the financial crisis. The negligible additional return IMO is not worth the risk. But if you are really interested then do your homework and make your own call.

As kebinu says, with current low interest rates, there won't be much difference even with $10k. It is having the $10k that counts.

 

[kebinu]

I withdrew my fd years ago and got a pro rated interest return, but take note that fd has already roll over once automatically, this may explain why I still have the pro rated interest.

 

[dreant]

Open a CIMB StarSaver account, and park the money there. You'll get 0.8% interest, and can access you funds at any time.

 

[cheeyen]

As others have said, emergency funds must be readily available in full for emergencies, so a simple bank savings deposit will be the best. Also, you should not be taking much risk with it, so no stocks and nothing illiquid.

You can actually put it in a FD if you do not mind forfeiting the interest should you have to withdraw prematurely, but I have not done it before so I am not sure if there will be delays. Preferably it should also be in a convenient bank too, but if you like to get a bit more interest with your money, you can try CIMB's 0.8% pa account. They have only 2 branches. Other options are OCBC's Bonus+ account: effective 0.6933% pa if no withdrawals, minimum $10k.

Some time back there was a debate here about whether money market funds such as Phillip's were suitable places for emergency funds. Their website quotes a 1-year return of 0.57%. I was not in favour because of potential liquidity issues, because it is not covered by deposit insurance, and because money market funds have run into trouble before during the financial crisis. The negligible additional return IMO is not worth the risk. But if you are really interested then do your homework and make your own call.

As kebinu says, with current low interest rates, there won't be much difference even with $10k. It is having the $10k that counts.

Hi Izydata,

Thanks for the detailed explanation, I'm looking at CIMB savings as well as the UOB FD promotion UOB : Singapore Dollar Fixed Deposit

0.8% vs 1%, but I guess FD will have an disadvantage should I be withdrawing the money, I will get no interest at all.

I reckon it will still be best to keep it in savings account just that to move it to CIMB? I'm currently on POSB mysavings account.

 

[kebinu]

Hi Izydata,

Thanks for the detailed explanation, I'm looking at CIMB savings as well as the UOB FD promotion UOB : Singapore Dollar Fixed Deposit

0.8% vs 1%, but I guess FD will have an disadvantage should I be withdrawing the money, I will get no interest at all.

I reckon it will still be best to keep it in savings account just that to move it to CIMB? I'm currently on POSB mysavings account.

Then you may not find the ATM when you need it.

 

[cheeyen]

Then you may not find the ATM when you need it.

Hi Kebinu, I get where you are coming from, liquidity = easy access when you need it.

But I believe CIMB do have online banking for bank transfer back to my POSB account should I really need the money urgently, do correct me if I am wrong.

 

[kebinu]

Hi Kebinu, I get where you are coming from, liquidity = easy access when you need it.

But I believe CIMB do have online banking for bank transfer back to my POSB account should I really need the money urgently, do correct me if I am wrong.

Inter bank transfer may need 2-3 working days to go through.

 

[FP_IFA]

Transferring money between different banks took a day or 2 to clear. Suggest you to think again if $75 difference really worth all this trouble?

 

[dreant]

Currently, CIMB only has 2 branches in Singapore. At Raffles Place, and Orchard Road. Their ATMs are only at these 2 locations as well.

To me, this small inconvenience is actually a good thing, as I would need to make a (small) effort if I want to tap into my 'reserves'.

Aside from withdrawing money over the counter, or via ATM, you can use internet banking to transfer money (2 working days, $25k limit per day), or write yourself a cheque and deposit it (1 working day, no limit).

 

[dreant]

Then you may not find the ATM when you need it.

Uhh, by that logic, he should carry the $10k around with him everywhere he goes?

Aside from Cash, I don't think you could get any more 'liquid' with a StarSaver account.

Transferring money between different banks took a day or 2 to clear. Suggest you to think again if $75 difference really worth all this trouble?

Lets see... CIMB's interest is daily compounded; so yes. If it came to that, I'd still have change after taking a cab there and back to get my money *now*.

 

[cheeyen]

Uhh, by that logic, he should carry the $10k around with him everywhere he goes?

Aside from Cash, I don't think you could get any more 'liquid' with a StarSaver account.



Lets see... CIMB's interest is daily compounded; so yes. If it came to that, I'd still have change after taking a cab there and back to get my money *now*.

Hi dreant,

Daily compounded means since every month I will be depositing more than 500, therefore chances besides the 80 bucks gain at the end of the year, I might have more since interest is based on the increment amount am I right to say that?