Interests rate of High-interest Savings Account (HISA) has served most of us well for the past few years. However, there have been rate cuts since January of 2020, led by DBS in Singapore. This change has caused many yield hunters to run out of options for their cash deposits. Frankly speaking, time deposits at around 1.1% is really too low all things considered. To put things into perspective, a $100,000 deposit with a 1.1% interest rate will only yield $1100 after a 365 day lockdown period. In this post, we will explore the latest ways to save money and why investing in stocks and bonds now would make a lot more sense.

Short term saving policies are promising somewhat higher yields than HISA

Many people would have heard about SingLife, Etiqa, NTUC Income, GE saving plans, which offer around 1.8 to 2.5% per annum for your capital with some even offering guarantees for yields and your capital. While all of these are more attractive than parking cash in banks but are they the best options one should take if you have a time horizon of around 1 to 3 years for $10,000 to $100,000? The answer is no because whether it is parked in a bank or an insurance company, the money is technically invested to earn higher yields using low to high-risk instruments. Granted that you would not have to go through the same anxiety of an investor but what is the potential difference in returns if you chose to park your cash in your own investments instead? To put into perspective, I have listed some examples of Yields of low-risk investments for your reference.

With regards to lockdown periods, all of these options are similar as they all allow early withdrawals albeit with some drawbacks if the policy states so or if the “current” bond price is lower than your entry bond price. Bearing in mind that the examples stated above are all similar in terms of risk, yet there is a stark distinction in yields. This shows that there are many other options apart from those which are marketed on social media by celebrities or other advertisement media.

Why is it a logical thing to invest in stocks at the moment?

The lower interest rates environment is widespread and one of its impacts is that more companies will be willing to take up loans to finance its growth or other purposes at a cheaper rate. Essentially, this equates to shareholders gaining access to the “cheap money” for their companies as well. Over time, this will cause stock prices to grow because the cost of growth for companies is actually lower than before, which leads to higher revenue and profits.

Another obvious reason will be the price of current stocks in the market. Apparently, prices has been depressed due to the pandemic as the main cause and other matters concerned political stability between countries around the world. This itself presents opportunities for new investors to take up a position at a much lower cost and a much higher yield as compared to a year ago when prices were much higher. A simple illustration would be to look at companies that are more prominent such as ComfortDelgro, Singtel, and Capitaland. The share prices of these companies have fallen significantly as shown below.

The purpose of showing current discounts of share prices means that you are potentially getting stocks at a bargain and much higher yields if the company returns to pre-COVID share prices and its original dividend yields.

Good time to be exposed to the idea of Risk vs. Reward

With lesser incentives to park cash in saving accounts and greater discounts when buying shares, it is a good opportunity to be exposed to the world of investing. While it might still be daunting as your capital will experience large real-time fluctuations, however, you would soon realize that the benefits of investing your monies instead of parking it with other financial products. Additionally, you will be in a rare position to make investment decisions not based on previously known knowledge because of the changes in the way industries work and run their businesses.

Closing thoughts

Discussions about the latest high yield saving options are growing in social media platforms and forums but there is little effort made to encourage more people to consider investments in bonds or stocks. Instead, many are still obsessed with the difference between 0.1-0.4% interest per annum. In this post, we have explored options beyond saving policies which are currently one of the higher-yielding “saving accounts” compared to HISA and Time deposits. Those alternatives do not only provide higher yields but are also at a discount for new investors to consider. Hopefully, more people will realize that risk-free saving options are equivalent to high-cost investments and take this opportunity to invest in stocks and bonds instead.