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How I Manage My Cash Between SSB, T-Bills, Fixed Deposits and Cash Funds

Calvin Lo

With stocks in decline for a year now and both savings accounts and bonds yields increasing, there’s little incentive to take higher risks in the stock market. Naturally, interest in Singapore Savings Bonds (SSB), Treasury Bills (T-Bill), Fixed Deposits (FD) and cash/money market funds have increased significantly. In contrast, interest in speculative assets like crypto, unprofitable growth tech stocks, and SPACs (remember those?) have dropped off.

Singapore Government Securities (SGS) bonds yield curve has become increasingly inverted, similar to U.S. Treasury bond yield curve. That means short-term bonds are yielding higher than long-term ones. That’s worrying because people would not be willing to invest in bonds with longer tenures, which are vital for businesses that might need to have more certainty when taking out loans to invest in longer term projects. Also, investors might prefer to park their money in short-term SGS bonds which are risk-free vs investing in stocks or even corporate bonds. If businesses can’t get loans, that hampers their ability to grow.

Source: World Government Bonds
Source: World Government Bonds

Ok, enough amateur economics. To me, what’s important is how should I manage my cash and investments under these market conditions. At least in the short term with inflation still running hot and interest rates rising, leaving cash in the bank earning close to zero interest is unacceptable.

Currently, we have a few buckets of cash:

  • Emergency funds: Approximately 8-10 months of household expenses
  • Investment funds: Our portfolio always has a cash allocation to take advantage of lower prices
  • Parents funds: A portion of their savings + my monthly allowances to them
  • Education funds: There’s a cash component in our endowment plan for the kids that we can choose to leave with the insurer or withdraw to invest at higher yields

Stocks

First and foremost, I have a long time horizon to retirement so I continue to invest a portion of our monthly income into stocks through index funds regardless of market conditions. In the super long run, stocks have historically (not a guarantee) always recovered from declines and provided the best real returns (inflation-adjusted) vs other asset classes. That said, I’m only deploying half of our monthly contributions to our investment account into stocks and accumulating the other half in cash. Thus the need to manage that cash.

Source: Traders Insight by Interactive Brokers (credit Jeremy Siegel)

SSB

So far the bulk of our cash has been deployed into SSB, since I started applying for them in July 2022. Currently, we have $64K in SSBs. My steady state for SSB is $40K from emergency funds and $20K from parents funds.

The extra $4K is “borrowed” from investment funds to rollover lower yielding SSBs. So this month, I’ll be redeeming minimally $4K in SSB from my lowest-yielding tranche (July 2022) to pay it back. I might also “borrow” a bit more to rollover the rest of my July tranche and my Oct tranche which are both yielding below 3%.

Next month’s SSB from the looks of it will probably be around 3% yield, based on 10y SGS bond yields for the first half of Dec. SSB has 10 year tenure which I like so I can lock in these 3+% yields. The great thing about SSB is that you can redeem them anytime without any penalty, but you will need to wait till the following month to get your cash + accrued interest back.

For more SSB stats, head over to my SSB Tracker.

Source: World Government Bonds

T-Bills

The last auction for 2022 will be for the 6-month T-bill happening on 21 Dec, but I likely won’t be participating. The previous 6-month T-bill auction on 8 Dec and had a surprisingly high cut-off yield of 4.4%.

With yields falling, I speculate that demand for T-bills will be higher this round and thus result in lower cut-off yield. Instead, I will go for more yield certainty through fixed deposits.

Fixed Deposits

With fixed deposit (FD) rates rising to as high as 4+%, FD has become a lot more attractive. CIMB seems to offer the highest FD rate now at 4.15% (4.2% for preferred banking) for 12 or 18 month tenures and minimum S$10K placement. That’s an almost 1% spread to Jan 2023 SSB of 3.26%, or +1.2% spread if you compare vs SSB 1st year rate of 2.95%.

With FD though, you will forgo the promotional FD rates and possibly a few months of interest if you choose to terminate prior to maturity. So best to be pretty sure that you will hold till maturity. Another consideration is whether you can get similar or higher interest rate upon maturity.

With SSB rates falling, I think locking in some FD at 4.15% is a good deal. The Fed terminal rate is expected to be ~5%, so I don’t expect much further upside in FD rates anyway. I’ll likely place S$10-20K into CIMB FD this month from Education funds and/or Parents funds.

Read this post from Seedly: Best Fixed Deposit Rates in Singapore (6 Dec 2022): UOB, OCBC, DBS, Maybank & More

Source: CIMB
Source: CIMB FD T&Cs

Cash or Money Market Funds

Typically, I don’t invest in cash or money market funds because I want to avoid the management fees. However, with these funds now yielding 4+% too, I think they are worth considering too especially if you want a more passive approach to cash management.

Currently, I only invest in cash or money market funds via broker apps like Tiger Trade (Tiger Vault) and moomoo (Cash Plus) for cash, and Endowus for SRS funds.

Tiger Trade and moomoo both have an Auto-Sweep function (SmartSave on moomoo), that automatically invests or “sweeps” your cash into cash funds every trading day morning. You would have to enable this auto-sweep function in your Tiger Vault or moomoo Cash Plus settings. I have them enabled so I can earn some yield on my investment cash while waiting for buying opportunities in the stock market.

See screenshots below from Tiger Vault and moomoo Cash Plus respectively for the funds they are invested in and associated yields (changes everyday). The balances invested in cash funds are included in your Buying Power and will be automatically redeemed to repay account deficit in the same currency after you’ve made any trades.

Source: Tiger Trade app
Source: moomoo app

Bonus: CPF/SRS

As we come to the end of the year, cash can also help you get some additional tax reliefs if you top-up your CPF SA/MA or SRS. This year, I chose to contribute a small amount to my SRS to get some tax relief and invested into cash funds via Endowus Cash Smart – Secure.

I didn’t do any CPF cash top-up this year, mainly because I don’t have a lot of spare cash but CPF SA/MA could also be an option for retirement funds to earn 4-6% yield.

Read my previous post: How To Reduce Taxes Through SRS Contributions

Source: Endowus app

How are you managing your cash? Let me know in the comments.

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Disclaimer: This is not financial advice. I am not professional financial advisor nor do I work in the finance industry. Anything I write here is purely my personal opinion. Please do your own research and due diligence before investing into anything. All investments come with associated risks. Best to consult a financial advisor if you’re still unsure.

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