This article was sponsored by Moomoo Financial Singapore Pte. Ltd. All views expressed in this article are the independent opinion of DollarsAndSense.sg based on our research. DollarsAndSense.sg is not liable for any financial losses that may arise from any transactions and readers are encouraged to do their own due diligence. You can view our full editorial policy here.
High inflation and rising interest rates have been the bugbears of equity markets in 2022. This has led to heightened volatility and heavy market corrections since the start of the year. In such turbulent market conditions, investors may prefer to stay in cash rather than take on more risk by investing (or staying invested) in stocks.
Instead of keeping liquid cash in a bank savings account that earns meagre interest, you could consider alternative options like fixed deposits, money market funds, and Treasury bills (T-bills). We look at the pros and cons of using each of these options to protect your capital, particularly in this current economic climate.
What Are Treasury Bills?
Treasury bills (T-bills) are short-term Singapore Government Securities (SGS) issued with a loan tenor of either 6 months or 1 year. Unlike traditional bonds, they are issued at a discount to their face value. This discount represents your return on investment, which you get upfront.
As T-bills are backed by the Singapore government, which has a triple-A credit rating, they are considered a low-risk investment. The T-bills can be purchased at regular auctions, which take place once every two weeks for the 6-month T-bill issues and once every 3 months for the 1-year T-bill issues. T-bills can be bought using our cash, SRS, or CPF funds. The minimum investment amount is S$1,000, and in increments of S$1,000.
To apply for the T-bills, you would need a bank account with one of the three local banks and a Central Depository (CDP) account. The charges are waived for cash and SRS through online banking applications. However, if you need to sell the T-bills before maturity, you would need to go to the local banks. This may result in some investment risk as the bond price could fluctuate depending on the market interest rate environment.
What Are Fixed Deposits?
Fixed deposits, also known as time deposits, are a type of deposit that pays a fixed (guaranteed) return that is usually higher than the savings account for a particular period.
The interest rates for FDs are determined by each bank based on its balance sheet and funding needs. Banks may offer a “board rate” or a higher “promotional rate,” which may require fresh funds or have other requirements.
The lock-in period for FDs can be as short as 1 month or as long as 60 months, and you may be charged a penalty fee for any early redemption. Nevertheless, there are no extra fees involved with investing in FDs.
What Are Money Market Funds?
Money market funds (MMFs) are unit trusts that invest in a variety of high-quality, short-term debt instruments like cash, government bonds, commercial bills, and deposits that are highly liquid and have a relatively short duration.
These investments are considered low-risk and enable MMFs to generate higher returns than regular savings accounts. It should also be stressed that the expected interest returns of MMFs are variable since they depend on the fund’s price (which may increase or decrease) and the fund manager’s capacity to reinvest maturing bonds at the projected yield.
There are no limitations on how much you can invest in MMFs, which makes them suitable for any investor. MMFs are also easily redeemable at anytime, usually within T+1, without any penalty. As MMFs are unit trusts, investors would need to pay a (low) management fee or expense ratio.
Money Market Funds May Be Superior For Some Investors In A Rising Interest Rate Environment
The Federal Reserve has reiterated its monetary policy of hiking interest rates to around 5% by 2023 from the current 3.75% to 4.00% to quell its high domestic inflation, which stands at around 7.7% (as of October 2022).
Given the current rising interest rate environment, MMFs offer investors a better opportunity to earn higher returns should bond yields continue to go higher. Though FDs and T-bills offer capital protection from market volatility, they usually lag in capturing the rising yields as the interest rates are fixed at the time of investment. On the other hand, the maturing bonds in a MMF can be reinvested in higher yielding instruments, allowing the MMFs to capture higher returns as interest rates (and bond yields) go up.
For seasoned investors who may be waiting in cash for the right time to enter the markets, MMFs may also be more suitable. This is because MMFs allow investors to redeem their holdings at any time without penalty. This is unlike FDs, which have a fixed lock-in period and may charge a penalty fee for early redemption, and T-bills, which carry an investment risk if sold before maturity. Being able to quickly liquidate is important for investors looking to make opportunistic trades because the markets could bounce back sharply.
Here’s a quick recap of the key differences between FDs, MMFs, and Treasury bills.
|Treasury Bills||Fixed Deposits||MMFs|
|Investment Capital||Minimum investment of S$1,000, and in multiples of S$1,000 subsequently||Typically require fresh capital of at least a few thousands of dollars for attractive returns||Can invest as little as S$0.01 with no maximum cap|
|Liquidity||May incur additional charges and liquidity risk if redeemed before maturity||May need to pay penalty fees for early redemption||Highly liquid, can be redeemed anytime without any charges|
|Returns||Fixed based on the bidding result from each auction||Fixed, and determined by the bank at the time of investment||Varies depending on market interest rates and the positioning of the underlying portfolio|
|Capital Guaranteed||The principal and coupon are guaranteed by the Singapore government||Usually full principal guaranteed by bank (and up to S$75,000 under SDIC)||No capital guarantee but funds are invested in very low risk debt instruments|
|Fees||No additional fees charged for cash/SRS applications||No additional fees charged||(Low) management fees, varies with funds. May also have a sales charge (which is waived by many cash management solutions).|
Whether you want to maximise your short-term returns while waiting for opportunistic trades or reduce volatility and overall portfolio risk in the long run, MMFs are a viable option. You can invest a large sum at a low risk and earn a decent return compared to leaving it idle in your savings account.
moomoo Cash Plus Can Be A Good Alternative Cash Solution
Under moomoo Cash Plus, investors may subscribe to two MMFs: the Fullerton Cash Fund (SGD-denominated) and the CSOP USD Money Market Fund (USD-denominated).
For the purpose of this article, we focus on the Fullerton Cash Fund (as we are comparing MMFs to Singapore Dollar FDs and T-bills). Nevertheless, investors can choose the fund that suits their needs best, especially if they are storing USD in their investment accounts.
The Fullerton Cash Fund was launched in February 2009 and invests primarily in Singapore Dollar deposits with varying terms of maturity of not more than 366 calendar days. It currently has a fund size of around S$1.67 billion and has a solid track record of outperforming its benchmark index since its inception. Though returns are not guaranteed, the fund has not had a negative monthly return since inception.
The fund currently has a 7-day annualised yield that is above 2.50%^.
Based on the annual report (for year ended 31 March 2022), the Fullerton Cash Fund has 31.45% of its net asset value in high-quality AAA/Aaa rated debt securities. This underscores the quality level of the debt securities in its portfolio and the overall risk of the fund.
It also has a short maturity profile, with at least 88.5% of underlying investments maturing within 4 weeks, which allows the fund to reinvest quickly to capture higher yields in a rising interest rate environment.
When you invest in MMFs like Fullerton Cash Fund through moomoo Cash Plus, you retain full flexibility over your investment funds. You can switch between other investments on the moomoo platform and the MMFs at any time without having to pay subscription and redemption fees or incur margin interest.
The returns from the MMFs are also easy to interpret and are shown as the 7-day annualised yield, which is net of all costs. This allows you to easily keep track of your profits on the moomoo investment app.
There is also no minimum investment amount, which means you can decide when to add or withdraw your funds as your needs and requirements change. However, if you invest at least S$100 in moomoo Cash Plus for the first time today, you will enjoy S$2 cashback every day for 10 days. That’s up to S$20 on top of the yield return from your choice of MMF fund. Not only that, moomoo is currently offering new users of its Cash Plus service another 5% p.a. in guaranteed reward on top of the other promotions when you invest in the Fullerton SGD Cash Fund or the CSOP USD Money Market Fund.
For instance, you could invest as little as S$100 and earn S$1.20, or you could invest the maximum amount of S$10,000 and earn S$123.28 for 3 months (or 90 days). In total, new users could get up to S$143 in rewards on top of the fund returns for investing in moomoo Cash Plus.
For existing moomoo SG universal account holders, you can also opt in to SmartSave, which will automatically subscribe your uninvested cash into moomoo Cash Plus to generate better returns as you wait for good market opportunities.
You can also boost your returns from investing in moomoo Cash Plus by referring your friends to sign up for an account. By referring up to 6 friends, where one friend equals one month, you enjoy the same 5% p.a. guaranteed rewards for 6 months (or 180 days). This equates to S$246.57 [S$10,000*[5%/365]*180] for a maximum investment of S$10,000. What’s more, get involved in the World Cup frenzy and win attractive prizes from a prize pool of S$50,000 in cash coupons. All you need to do is make 3 or more accurate guesses about which country will win its football match.
So get the ball rolling on your idle money by investing in moomoo Cash Plus for better returns and capital protection in this volatile and rising interest rate environment.
^The indicative 7-day annualized yield is derived from the past performance of Fullerton Cash Fund (SGD) and should not be viewed as an indicator of future results.
All views expressed in this article is independent opinions of the author. Neither moomoo Singapore or its affiliates shall be liable for the content of the information provided. This advertisement has not been reviewed by the Monetary Authority of Singapore.