With rising interest rates, where do I deposit my emergency funds in 2022?

The current interest rate environment is very different from that of the past 2 years. To be specific, interest rates have gone up from 0% to 4% in a very short span of time. With such a meteoric shift, various financial products have also adjusted their respective payouts. Therefore, it is now a worthwhile personal finance exercise for me to review my own emergency funds allocation. With rising interest rates, where do I deposit my emergency funds in 2022?

1) Banks’ flagship savings accounts

I have previously reviewed each of the local bank’s flagship savings account:

• DBS Multiplier Account
• UOB One Account
• OCCB 360 Account

Regardless of the number of hurdles that I am asked to jump through, these savings account still have a part to play when it comes to where I park my emergency funds. To be fair, the banks have responded to the rise in Fed Funds Rate by also increasing the interest they pay on their respective savings accounts. Therefore, I shall update the attainable interest rate from each of this bank in Diagram 1 as at Sep 2022.

1) DBS Multiplier – I perform plenty of activities on the DBS ecosystem which allows me to achieve 2% effective interest rate per month. Some of these activities are deliberate while some are not. For instance, I explained in a past article on how the insurance hack allows me to unlock the insurance category at less than $5 per month. I also refinanced my home loan from HDB to DBS  after the circuit breaker which was fixed at 1.5% p.a. for 5 years.

2) UOB One – Of the local banks, UOB offers the easiest activities (lowest hurdles) and hence I am not complaining about its lower interest rates. I consistently spend $500 on the UOB One card and have long automated 3 GIRO transactions to charitable organisations and government agencies.

3) OCBC 360 – Despite advertising an effective interest rate of 4.05%, I can only achieve 1.8% because I only perform 3 out of the 6 activities. The minimum amount to qualify for Insure and Invest are too high so they are not worthwhile from my perspective.

2) Singapore Savings Bonds

I have been participating in Singapore Savings Bonds since August 2022 when I noticed that the average interest rate in that tranche was 3.0%. The past few issuances ranged between 2.6% to 3.0% and when you compare against the attainable interest rates from the banks in Diagram 1, you can understand why I am attracted to them. It is not just interest rate alone, let’s not forget that SSB is government-backed while deposits in bank accounts are only protected up to SDIC limits. Diagram 2 calculates the return for each year a SSB Bondholder who subscribes to the October 2022 tranche is guaranteed to receive.

While I recognise that it takes time to build up a portfolio of SSB, the maximum allocation of the past few series actually suits me fine perfectly. As I place a high priority on liquidity, I am comfortable to know that my SSB can be redeemed at next month’s issuance.

Moreover, even if a recession happens and Fed abandons its tightening monetary policy, I will not be affected as I have already locked in the interest rates for 10 years. I think this benefit is severely underrated and worth having in one’s pocket under a VUCA environment.

These days, it is not possible to mention Singapore Savings Bonds without Treasury Bills (‘T-bills’) in the same conversation. According to Monetary Authority of Singapore (‘MAS’), T-bills are essentially short-term Singapore Government Securities (‘SGS’) issued at a discount to their face value. While the interest rates offered for T-bills are higher at 3.3% for the latest offering, they are not as liquid in the secondary market. Therefore, I am giving T-bills a pass as I want to be able to sell and raise cash quickly to take advantage of any market crash.

3) Money Market Funds

In all honesty, I am not familiar with money market funds until the robo-advisory platforms began to offer them one after the other. I was invited to try Moomoo Cash Plus and after using it for a while, I find myself quite liking this product. This is where I park idle funds that were already sitting on the zero-commission brokerages. These idle funds are a result of distributed dividends, leftover purchases or sale of previous securities. The 7-day yield for the Fullerton SGD Cash Fund stands at over 2% which beats the interest rates in Diagram 1. However, do note that the returns of cash management funds are typically not guaranteed. With the generous welcome offer thrown in for even existing users, I decided that this product is a good place to deposit my emergency funds as well.

4) Insurance Savings Product

On the other hand, I find that insurance savings product are not the best places to deposit my emergency funds in 2022. I was a previous user of Dash EasyEarn, Dash PET as well as Singlife. As shown in Diagram 3, these products have served me well and generated a few hundreds in interest rates over the past few years.

Unfortunately, in the current interest rate environment, their returns have become relatively poorer. As a result, the funds have all been withdrawn to be placed under Singapore Savings Bonds instead. Here is an example of how I liquidated Dash EasyEarn.

Step 1) Contact etiqa via whatsapp or email

Step 2) Provide your policy number and answer a series of KYC tax-related questions

Step 3: If your NRIC is registered with PayNow, check your bank account for the funds after 3-5 working days.

Conclusion

Readers would notice that fixed deposits are missing from this article. This is because I don’t find them attractive at all given that withdrawal before maturity usually incur a penalty. As I place a high priority on liquidity, I find that the alternatives presented here, such as the SSB, are superior to fixed deposits. Afterall, these are emergency funds that we are talking about which are important because we do not know when we might need them for a rainy day.

This is my strategy to park my emergency funds in 2022, happy to hear from readers any other viable options that I might have omitted! Every bit of additional return count to fight the inflation monster!

*Note that this article contains referral links that goes to maintain the sustainability of this blog

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With rising interest rates, I am sure home-owners are worried about their current mortgage plans, more so for those with fixed rates that are maturing in the next 6 months. My suggestion is to shop around for the most competitive home loan rates on PropertyGuru’s Smart Refi. This allows you to make a direct and more accurate comparison and I highly recommend completing this exercise as part of your decision-making process. The external interest rates are beyond our control but at least make the best decision with the given parameters.

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