In this first instalment of our Yield + Income Series, we look at the appeal of Cash Plus solutions. How is it possible for such solutions to offer higher-than-cash rates without any lock-in or top-up requirements?
2023 was a bumper year for cash savers. With interest rates raised to historic highs to combat inflation, savers rushed to take advantage of unusually attractive fixed deposit and savings rates. But now that inflation is slowly easing, and banks are flush with liquidity, the good times are coming to an end.
As a result, promotional fixed deposit (FD) rates this month have fallen to only about 3.1 percent1 on average. Some banks have also cut the maximum interest rate on their flagship savings accounts. Not surprisingly, many people are now looking for a better place to park their cash. And many want to avoid the constant need to compare various FD rates, understand the different promotional requirements, or switch bank accounts, just to achieve slightly higher rates.
Why are Cash Plus solutions so attractive?
Enter Cash Plus solutions – a convenient alternative to FDs.Cash Plus solutions (also known as Cash Management Accounts) typically invest in money market instruments such as Treasury bills (T-bills), very short duration bonds and fixed deposits. These can be packaged together into money market funds, which are a key component of most Cash Plus solutions. According to Morningstar research, investors poured S$766 million into Singapore-managed money market funds in the first three months of 2024.
There are three main reasons why so many investors are choosing Cash Plus solutions for their short-term cash needs.
- FD-beating yields
Inflationary pressures around the world are coming down but not as quickly as many had hoped. This has caused markets to cut back their expectations of significant rate cuts this year. In this interest rate environment, Cash Plus solutions are offering yields well above that offered by FDs. They currently range from about 3.5 to 4.5 percent per annum.
- Stable prices
Even if interest rates were to fall, the price of money market instruments such as T-bills will tend to remain stable. This is due to the limited supply of their underlying securities and the high demand for interest-paying instruments. This helps Cash Plus solutions to ensure that their investment returns remain relatively stable and capital is preserved.
- No lock ins
Cash Plus solutions typically invest in a large number of short duration securities that mature at regular intervals, thereby enabling investors to easily and quickly access their funds. These solutions are therefore ideal for parking short-term cash, whether for upcoming expenses or while waiting for attractive investment opportunities to come along.
Fig 1: Overview of Cash Plus solutions vs fixed deposits vs T-bills
| Cash Plus | Fixed deposits | T-bills | |
| Average yield | 3.5 – 4.5% | 3.1%1 | 3.65%2 |
| Risk level | Low | Low | Low |
| Lock-in period | None | Yes, based on term of deposit | Yes, based on term of investment |
Cash Plus solutions: Frequently Asked Questions
To help investors determine if Cash Plus solutions are a right fit for them, we address some of the most common questions.
- Are Cash Plus solutions safe?
Most Cash Plus solutions hold very short-term, high-quality assets packaged into a money market fund. These are aimed at preserving capital, making them suitable even for very risk-averse investors. However, some more aggressive solutions include longer duration or lower quality bonds, so it is advisable to check on the composition before investing.
- Is there a minimum holding period?
No. Cash Plus solutions typically offer daily liquidity, which means that investors can withdraw their money anytime with no withdrawal fees or penalties. This sets them apart from fixed deposits and T-bills, where your money is locked in for the duration of the deposit / investment.
- Do Cash Plus solutions have a minimum investment amount?
The minimum investment can start from as little as S$1 to S$1,000, and this offers investors exposure to multiple securities. In comparison, FDs typically have minimum placement amounts ranging from S$1,000 to S$50,000. And one tranche of a single T-bill requires an investment of S$1,000.
- Are there investment limits or tiers to take note of?
Cash Plus solutions have no investment limits or additional requirements. This is unlike some FDs which have caps on the deposit amount eligible for their promotional rates, or savings accounts that require salary crediting, credit card spend, or other product purchases. Also, unlike T-bills, there is no risk of not receiving the desire allotment due to oversubscription.
- Do Cash Plus solutions require regular top-ups?
No. Investors can enjoy the yields offered by Cash Plus solutions without adding to their initial investment or after withdrawing some of their initial capital. Unlike some flagship bank savings accounts, there is no need to maintain a monthly average balance.
- Why not just invest directly in T-bills?
Cash Plus solutions typically invest in a portfolio of one-month and/or three-month T-bills. Such very short duration T-bills are only available to professional investors. Given the inverted yield curve, these T-bills have higher yields than the six-month or one-year T-bills that are open to retail investors.
| If you are interested in investment opportunities related to the theme covered in this article, here is a UOB Asset Management Fund to consider: United SGD Money Market Fund
You may wish to seek advice from a financial adviser before making a commitment to invest in the above fund, and in the event that you choose not to do so, you should consider carefully whether the fund is suitable for you. |
1Source: Various banks’ fixed deposit pages, as of 4 June 2024
2 Source: MAS, for T-bill issue date 28 May 2024
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