Higher-for-longer rates a boon for savers

RISK-AVERSE investors may well be able to keep having their cake and eating it.

The US Federal Reserve’s guidance for interest rates in its latest meeting last week dampened expectations for rate cuts in 2025. Fed chairman Jerome Powell indicated two cuts in 2025 or a total of 50 basis points, compared to earlier expectations of 100 basis points.

Markets, however, may be pricing in only one rate cut in 2025, or even none. Morningstar said the market is incorporating a 60 per cent probability of the fed funds target range being at 4.25 to 4.5 per cent or higher by end-2025, “meaning no net rate cuts in 2025”.

For savers, the trend suggests interest rates for fixed deposits (FDs) and lower-risk options such as six-month Treasury bills (T-bills) and Singapore Savings Bonds (SSB) may remain attractive in 2025.

Another piece of good news is that there is no shortage of higher-yielding options, if you are prepared to recalibrate your risk and liquidity requirements. Inflation remains a concern, after all.

Already the rates for six-month T-bills and SSB issuances are creeping up. In the latest SSB issuance, closing for applications on Dec 26, the average annual rate for 10 years is 2.86 per cent, compared to 2.81 per cent in the previous tranche. In November, the SSB average 10-year return slipped to a low of 2.56 per cent.

For six-month T-bills, the cut-off yield edged up to 3.02 per cent in the auction on Dec 19, from the 3 per cent at the Dec 5 auction.

Elsewhere, robo platforms such as Endowus, StashAway and Syfe offer cash alternatives, where yields are projected to exceed 3 per cent. For those who prefer the safety of banks, you can still snag an FD rate higher than 3 per cent in December, depending on the bank.

But rates are being adjusted quickly. Within just a few days in December, POSB’s 12-month rate went from 3.2 per cent for amounts less than S$20,000, to 2.45 per cent per annum.

Even though so-called smart money, including strategists and asset managers, has been urging people to step out of money market funds, this is not happening fast enough. In the US, based on Crane data as quoted by Bloomberg, assets in money market funds broke the US$7 trillion mark in mid-November. Globally, money market funds assets under management rose 15 per cent to US$10 trillion as at H1 2024.

Cyrus Ng, senior analyst in Bondsupermart’s global fixed income team, points to renewed inflation concerns. “Our take is that inflation will remain higher for longer which we’ve repeatedly emphasised throughout the year… We don’t make forecasts on the exact number of rate cuts nor the exact meeting when the Fed would make the cut. But we think market expectations of one more cut look plausible. We think it’s more important to focus on the shape of the yield curve before adding duration.”

Endowus chairman and chief investment officer Samuel Rhee said: “The Trump administration’s tariffs or sticky inflation, more broadly, is likely to temper the Fed’s pace of rate cuts… Products which combine the best of both worlds – good yields and daily liquidity without any lock-ups – compared to fixed deposits, will continue to increase as a proportion of clients’ assets.”

Fullerton Fund Management believes regional divergences in inflation and growth will drive greater variation in central bank actions. “For most of Asia, inflation remains within central bank targets. However, uncertainty under a new US administration and persistent US dollar strength could slow the pace of rate cuts, particularly in economies like Indonesia, which are more sensitive to currency volatility and FX market dynamics.”

Here’s a bird’s eye view of some cash alternatives. Fees may apply for options invested into funds.

Parking cash with robos

Endowus’ cash management portfolio, called Cash Smart, is now approaching S$1 billion in assets, said Rhee. Other platforms are more reticent on assets under management. But Syfe, which rolled out Cash+ Guaranteed in 2023, said assets in the product surpassed S$100 million within the first month, and “keeps growing at a fast pace since”.

Syfe and StashAway offer guaranteed cash options, thanks to partnership with banks. You do not need to put in fresh funds, but deposit insurance may not apply to individual accounts on robo platforms, unlike bank accounts.

StashAway offers Simple Guaranteed comprising “competitive rates with no minimums or maximums”, said Stephanie Leung, the firm’s chief investment officer. “Our aim is to make it easy for people to earn guaranteed returns, eliminating the need to move funds from one account to another, no matter how interest rates change,” she said. Simple Guaranteed pays 3 per cent for one- and three-month tenors.

Syfe’s Cash+ Guaranteed offers 3.1 per cent for a one-month tenor, ratcheting down to 2.65 per cent for 12 months. A second option, Cash+ Flexi has money market funds as underlying investments. The projected return for Singapore dollars (SGD) is 3.3 to 3.4 per cent.

Endowus’ Cash Smart offering has three options, invested in varying proportions in money market and bond funds, depending on the yield objective. The Secure portfolio has a projected yield after fees of 2.9 to 3.2 per cent; the Enhanced portfolio is projected at 3.4 to 3.7 per cent; and the Ultra portfolio, 3.7 to 4 per cent.

Robos’ cash alternatives are typically invested into lower-risk funds by Lion Global Investors (LGI) and/or Fullerton Fund Management. LGI’s head of fixed income Goh San San said three of the firm’s funds are good alternatives to T-bills, adding: “This is because of the way our funds are structured to potentially obtain better yields as we take a bit of credit risk.” These are the Money Market Fund, Enhanced Liquidity Fund and Short Duration Bond Fund.

Bank options

Digital banks may offer deposits rates of more than 3 per cent. Trust Bank is offering up to 3 per cent on the first S$800,000. GXS is quoting 3.18 per cent; its base rate is 2.38 per cent, which is further enhanced by a system of “boost pockets” which pay bonus rates.

DBS offers cash alternatives based on “high-quality, short-duration” bond portfolios. The SaveUp digiPortfolio’s quarterly fact sheet specifies a portfolio yield of 1.5 to 2.5 per cent a year. As at Sep 24, the portfolio yield was 4.79 per cent. Income is reinvested in the portfolio.

There is also the DBS CIO Liquid+ fund, also a bond fund, with a portfolio yield of 4.66 per cent as at end-September. An annual management fee of 0.4 per cent applies. Based on the August fact sheet, the fund returned 4.7 per cent in SGD over one year, and has assets of around US$260 million.

UOB suggests money market funds (indicative yields of 3.3 per cent for SGD funds, and 4.2 per cent for US dollar funds), and shorter duration bond funds. The funds offered by UOB have an indicative yield of 3.9 per cent.

There is also the option of principal protected structured products linked to currency pairs. But such products are not guaranteed, and there is a risk of issuer default where investors may lose their principal. A US dollar note has an indicative yield of 3.6 to 3.85 per cent for a 12-month tenor.

Chocolate Finance

This is an interesting non-bank entrant. Chocolate Finance was launched earlier this year to “simplify savings”. It is founded by entrepreneur Walter de Oude, who had earlier founded Singlife. It offers savers 3.6 per cent a year on the first S$20,000, and 3.2 per cent on the next S$30,000. There is no lock-in and no guarantee on the capital or the interest rate.

The novelty is its “top-up programme” which supports the quoted rates by topping up the difference during the qualifying period currently in place until Mar 31, 2025 – or “until assets reach S$1 billion, whichever comes first”. “Chocolate designed the portfolio with achievable rates since (we) rely on portfolio outperformance as our business model,” the company said.

Chocolate Finance declines to specify assets raised so far. But de Oude said: “Customer demand has been far greater than we expected, and our growth has been phenomenal – which proves that so many Singaporeans are looking for new places to park their cash.” Fees will be charged on the outperformance above the promised base returns and will be subject to a cap.

Insurance endowments

These are almost always available, but they are typically illiquid – that is, while you are free to surrender before maturity, you may not recover your full premium if you seek to cash out early. Still, response to non-par guaranteed short-term endowments is understood to be strong. Currently, Great Eastern has Great SP which is guaranteed to pay 2.5 per cent a year, with a lock-in period of 24 months.