17 Jan 2025
SOURCE: CPF Board
Investing can help grow your finances while making your money work harder for you.
If you’re getting started with investing, it’s important to understand the risks involved. Generally, all investments come with risk. Higher-risk investments could lead to a higher probability of you losing your money.
For new investors, putting your money into safer options allows you to understand your risk appetite before deciding what to invest in next. Here are three safe investment options in Singapore to consider in your investing journey.
Risk-free investments
The two investments listed below are backed by the Singapore Government. This means that the Government guarantees that it will return you with your principal investment.
1. Singapore Savings Bonds (SSB)
A bond is a loan issued by companies and governments to raise funds. When an investor purchases a bond, this money is “lent” to the bond issuer for a specific duration.
SSBs is one such example, allowing individuals to invest in Singapore Government Securities (SGS).
To purchase an SSB, you will need to open a bank account with one of the three participating local banks and an individual Central Depository Account (CDP) Securities account.
Expected returns: This bond adopts a step-up interest structure with interest rates progressively increasing over time. For example, SSB’s interest rates for the November 2024 tranche start at 2.66% in year one and reach 3.01% in year ten. This means that your returns get exponentially higher the longer you hold the bond.
Benefits:
- Fully backed by the Singapore Government. You can withdraw your principal investment amount in full with no losses.
- You can hold the bond for a maximum of 10 years for long-term investment.
-Staggering the interest payment dates of several bonds can allow you to receive regular monthly interest.
Drawbacks:
- Lower starting interest rates may generate lower starting returns.
- Upper investment cap (maximum investment) of $200,000 per person.
2. Treasury bills (T-bills)
Just like SSBs, T-bills are issued by the Government but with either a six-month or one-year maturity period. These “bills” are short-term debt securities – they act as money loaned to the Government which will be available for withdrawal upon maturity.
You might be wondering how lending your money out helps you generate returns. When you purchase a T-bill, the asset is being sold at a price lower than its face value. When it “matures” and hits its full-face value, you cash out and get to enjoy the growth in value.
Expected returns: The expected yield differs depending on market fluctuations and the length of the maturity period chosen. For example, from May to November 2024, the average yield lies between 2.45% to 3.15%.
Benefits:
- Options for shorter maturity periods – ideal for those looking for a shorter investment return horizon
- Low minimum deposit of $1,000
Drawbacks:
- No periodic returns, only lump sum interest paid upon maturity.
- No redemption before maturity. However, you could sell your T-bills in the secondary market through one of the three participating local banks. Prices in the secondary market may change day-to-day according to market conditions. If you sell your SGS before maturity, the price may be higher or lower than what you paid for them.
3. Fixed deposits
Also known as time or term deposits, fixed deposits require your money to remain with the financial institution for a specific period. At the end of the time period, the financial institution returns you the money along with interest.
To begin investing in a fixed deposit, you will first need to open a fixed deposit account. Such accounts can be opened at a bank or licensed financial institution. Once you have an account, you can then decide how long you wish to leave your money.
If you are new to investing, the thought of having your money locked in could be intimidating. This makes it important to consider the trade-offs involved, such as not being able to use your money during the lock-in period.
Fixed deposits are regarded as safe investments, but they are not risk-free investments. This is because there is a possibility that you might not receive your deposit amount if the financial institution becomes bankrupt.
A key point to note is that your fixed deposits are insured for up to $100,000 under MAS’ Deposit Insurance (DI) Scheme, which is administered by the Singapore Deposit Insurance Corporation (SDIC). The scheme provides protection for all Singapore-dollar deposits held at a full bank or finance company.
Expected returns: Dependent on the bank’s minimum deposit, lock-in period, and any ongoing promotions.
Benefits:
- Relatively easy to set up.
- Interest rates are typically higher than that of a regular savings account and you earn guaranteed interest for the money you deposit.
Drawbacks:
- Relatively lower overall returns compared to other higher-risk investments like stocks.
- You will not be able to add or withdraw cash during the specific time period. If deposited funds are withdrawn before the end date, early withdrawal fees or other penalties could be incurred.
- Generally used for short-term investing of no more than 36 months.
These investments could be ideal for you if the following features align with what you are looking for.
Knowing your options and making informed decisions
Safe investments are a good way to grow your savings but do consider the different features of each investment option, so that you can make an informed decision based on your financial situation.
Other than investments, your CPF savings can also earn higher interest in your SA or RA. The earlier you make a CPF top-up or transfer, the longer the time your savings will have to benefit from compound interest!
Information is accurate as of the date of publication.
