Alternatives to a Savings Account
Recently, I arranged for a client to put his cash to an instrument that earns higher interest rate than the bank’s savings account. If there is a alternative that has the characteristics of to the savings account and earns more than the savings account, a lot of people will be interested if it fits their requirements. This is because the interest rates of saving accounts are very low!
The alternatives is the Cash Fund or a short-term SGD money market fund. You can get them from iFast platform through your Independent Financial Adviser. If you do not need any advise or further information, you can get it from www.fundsupermart.com.
- Cash Fund
The Cash Fund is a unit trust which has the investment objective of providing liquidity to investors and a return comparable to that of SGD savings deposits. The Fund predominantly hold its assets in SGD deposits with reputable financial institutions with varying terms of maturity of not more than 366 days.
- SGD Money Market Fund
A second and slightly different unit trust also achieves this by having the investment objective of managing liquidity and risk while looking to provide a return which is comparable to that of SGD short-term deposits. The Fund will invest in high quality short-term (not more than 2 years) money market instruments and debt securities. Some of the investments may include government and corporate bonds, commercial bills and deposits with financial institutions.
There are a few requirements for an alternative to a savings account. First, it has to be risk free or close to risk free. Secondly, it has to be liquid. Thirdly, it has to have negligible cost.
These alternatives fit the first criteria of being risk free or close to risk free as unit trust have legal structures that guarantees the assets belong to the unit holders even if the asset management company collapse. Since the underlying assets is guaranteed by the individual companies which the money is placed in, it is effectively guaranteed.
The second criteria is met as money can be placed in and withdrawn easily. Money can be placed in the Cash Fund easily by internet banking and it takes just a few days to for the withdrawal to be completed because the cheque is sent to the client’s address. Therefore, it is possible to use it as an instrument to place cash which is required for bigger items such as a laptop, holiday or renovation, but not for everyday $50 withdrawal for lunch and dinner.
As for cost of the unit trust, there is no sales charge. Therefore 100% of the clients’ money is placed in the underlying assets.
In conclusion, if you have requirements of putting aside cash for 3 months to 12 months, saving up for some purpose, these can be alternatives to savings account worth considering. There is no catch and works because it meets the 3 criteria of being risk free, liquid and with negligible cost.
Contact me at marco@managedwealthsingapore.com and I will answer you the best that I can.
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