Tuesday, January 17, 2017

How to Milk your Cash? Best Places to Park your Cash!


This post by Kyith has inspired me to write my own off-shoot version of where to stash your cash.

If you are collecting 0.05% interest on your bank account, you better pay attention!

I believe that there is a systematic approach to this. You just fill up the account that gives you the highest rate until the cap, and then you flow into the next account and the next account.

These are the 3 + 1 accounts / products that I would recommend and that I myself am using:
1. OCBC 360 (my post on it)
2. CIMB FastSaver (my post on it)
3. Citibank MaxiGain
4. *Bonus* Singapore Savings Bonds

But because I know y'all lazy af, I made a simple table for y'all to read and compare.


The first 3 products are very liquid (immediate withdrawal). They all don't have lock-in periods, though if you do close accounts within 6 months, most banks charge you a fee. I've purposely excluded other products because I think that they are inferior products due to (1) low yields or (2) complicated products.

The OCBC 360 has been talked to death, so it doesn't need much explanation (if you do, click to read my post up there). You just need to jump through hoops to get the maximum possible rate of 2.25%. Why is 2.25% the maximum rate when you can get up to 3.25%? Because the last 1% under the invest and insure portion is a scam for feeble minded people. Yeah, I said it. Hopefully none of you guys fall for that trap.

Why not SCB BonusSaver? Salary + GIRO + CC Spend is only 2.03%, and I feel that with the OCBC 365 card, it is easier to hit that $500 minimum spend.
Why not BOC SmartSaver? Salary + GIRO + CC Spend + Base is actually 2.35%, but BOC has horrible credit card offerings, so hitting that $500 is going to be a chore. *Note $6k salary crediting and $1.5k credit card spending is for the higher interest tier
Why not UOB One Account? UOB gives less interest than OCBC except for the extremely narrow bracket of $46,204 - $51,864. UOB only has the One card which I think it is good, but it is very strict in requiring 3 consecutive months of consistent spending.

The CIMB FastSaver is really the bomb. You do diddly squat and you get 1%. That's it. It's simple, no-frills. It is the perfect savings account with such a lower hurdle.

The reason why I listed Citibank MaxiGain after CIMB FastSaver is because of 2 reasons:
1. The much higher $15,000 minimum (eff Feb 2017)
2. The inflexibility to move cash around AND still get a high rate

The Citibank MaxiGain account is best thought of as a 1-time use account. You only put money in, and you never withdraw money, since it will reduce your account interest rate. However, the plus side of this account is that the rate builds up to be rather high without any of those silly hoops and hurdles to jump through.

I would strongly recommend the Citibank MaxiGain account to be thought of as a rolling fixed deposit. As such, the Citibank MaxiGain is the perfect product for an emergency fund. Instead of rolling over your FDs in accounts with minimum $20k, you can have it continuously roll at a higher rate, with the flexibility to increase your emergency fund at the current rate of your account (likely to be the maximum rate after 1 year). The best part is that you can also "break the bank" at any point of time, still receive accrued interests, choice to withdraw only partially and still receive a good rate for the balance, even after the rate drop due to withdrawals. Although inflexible to move money around, it is still liquid.

**BONUS PRODUCT**

The Singapore Savings Bonds come in last because it is slightly more complicated (need to open a CDP account and purchasing of it), rates are very variable and finally because it isn't immediately liquid. Withdrawal takes about a month, depending when you decide to cash out of your bond.

The rates that I have posted there is the range of MY OWN Singapore Savings Bonds issues that I applied for and received. The current issue open for application is between 1.05% and 2.44%, slightly lower than what I have. This money here is best used if you know your withdrawal requirement and are open with locking in a rate, but with the flexibility to withdraw earlier, if desperate. Think of it as Emergency Fund Plan B. Best used for conjuction with a big cash capital outlay and a very transparent date to withdraw.

That said though, if you are very sure that this is money you will not need to touch early (because you have a well-stocked emergency fund), you can actually consider looking for a good endowment plan that will match the lock-in period. I hate most insurance "investment" products, but not all endowment plans are bad, if you know how to pick a good one. For a 5 year lock-period, I have found an endowment plan with 38bps annual pick up (2.25% annualized) compared to the SSB. This is about 18.8% more interest by going with an endowment plan instead of the SSB. The downside is of course the absolute lack of liquidity and flexibility compared to what the SSB has. Understand your needs very carefully when decided if you are willing to sacrifice returns for flexibility, or if you want to have the highest rate possible and you don't mind to put yourself in an inflexible position.

Summary

Just a few years ago, the cash options in Singapore was pretty shit. I suppose that due to low rates globally, financial institutions have realized what a sizeable cash hoard is just waiting on the sidelines, and all these products are an attempt of the financial institutions to take a bite out of this juicy juicy market.

I'm not complaining though. Back then before all these products came about, perhaps the only methods of generating decent cash returns is (1) rolling over fixed deposits and (2) participating in a money market fund. Both of these products are fine, but they are so plain vanilla and with paltry rates. I have to say, I'm definitely more happy utilizing the options that are available in the market today.

A lot of people still forget: deciding to hold onto cash can be an active decision. Personally, I am actively choosing to hold onto cash and be light with my positions in the market. Holding onto cash is not as scary as most people think because of the "inflation monster" really isn't very scary these days. (Nov CPI all-items is still a big fat 0%, prices are still overall 0.8% lower than in 2014)

Cash is king if the economy crashes. Gold is king if the economy fails, but that's another story another day.

5 comments:

  1. Like you, i park my cash in ocbc 360, cimb fast saver, scb bonus saver at times when there are compelling promotions and then the ssb. Enough as it is for my cash to work hard. :)

    ReplyDelete
  2. Like you, i park my cash in ocbc 360, cimb fast saver, scb bonus saver at times when there are compelling promotions and then the ssb. Enough as it is for my cash to work hard. :)

    ReplyDelete
  3. Hi, you can also consider CIMB StarSaver, no-frills, 0.8%.

    ReplyDelete
  4. I hold very little cash. No spare to park in savings account. 70% vested.

    ReplyDelete
  5. Thank you for sharing your money tips and tricks! I have little to invest at the moment, however I am working to build that amount up to something more substantial. Once I do, I was wondering how I should invest or which savings I should place it in. This will definitely help me get started!

    Dewey @ TMS of PA

    ReplyDelete

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