Where should you deploy your spare cash? – All Your Low-to-No-risk Options March 19, 2025

The average savings account in Singapore earns an interest rate of just 0.05% per annum. For a deposit of S$20,000, that amounts to a mere S$10 a year. Given that Singapore’s core inflation rate in 2024 was 2.8%, keeping your spare cash in the savings account could have resulted in a real value loss of S$560 that year! Bank deposits often don’t cut it if you’re looking to build your wealth —or at the very least, protect it from inflation.

So, what’s the solution to protecting your idle funds from losing value over time? And what exactly are idle funds in the first place?

In this article, we’ll explore low-risk investment options that will optimise your spare cash.

How much spare cash should you have?

Spare cash typically refers to funds that have not been invested and do not earn interest or generate any investment income. These funds remain idle, without appreciating in value. As a general rule of thumb, the amount of spare cash one should have should be about 6-12 months worth of monthly expenses.

Why Invest Your Spare Cash?

Money kept in savings accounts not only fails to generate any returns but also loses its value due to inflation. Over a long period, this annual loss of value to inflation can really add up as these funds do not grow at the same rate as the cost of living. If that’s not reason enough, here are four key benefits of investing your idle funds:

• Higher Returns
  Compared to savings accounts, which tend to pay low interest rates, investments can provide higher returns over time if invested well. This allows you to grow your money more effectively.
• Hedge against Inflation
  Inflation erodes the purchasing power of money over time. Investing, on the other hand, can help you beat inflation and retain your capital.
• Compound Interest
  When you invest your funds, you benefit from compound interest, which occurs when the returns on your assets create further returns, resulting in more growth.
• Passive Income
  Certain investments, such as bonds, can provide a consistent source of passive income through regular interest payments.

What are considered low- or no-risk investment options?

As an investor looking for a place to invest your spare funds, your ultimate objective is likely to earn higher returns on your investment with little to no risk involved. With so many investment options available in the market, here are the hallmarks of lower-risk investment options for your spare funds that can help preserve your capital while still offering some return:

• Government Backing
  Investment options backed by governments are usually considered low risk because they offer a high degree of security. For example, Singapore Government Treasury bills , issued and backed by the Singapore government, are considered safe, due to Singapore’s AAA credit rating. Ranging from three months to a year, they often provide a decent yield for close to no risk.

• Creditworthiness
  Investing in businesses with high credit ratings is considered safe since these issuers have a proven track record of honouring their financial obligations. If you’re investing in a bond, always check the credit ratings of the issuing organisation. If you’re investing in a money market fund, the credit ratings would be part of the factsheet as an average credit rating for the whole fund, or as part of the investment approach.
• Stability
  Investments in stable companies or sectors that are less affected by economic swings tend to carry lower risk. Sectors such as utilities, healthcare, and consumer staples typically fall into this category. Choosing well-established companies with stable cash flows and strong market positions can offer a safer investment route.
• Liquidity
  Liquidity is an important factor when considering low-risk investments for idle funds, especially if you might need to access funds quickly. Investments that can be readily changed to cash without considerable loss of value, such as money market funds or high-quality bonds, are often less risky.
• Low Volatility
  Low-volatility investments help protect your principal from sharp market fluctuations, reducing the risk of losing your initial investment. A useful measure of volatility is the standard deviation, which quantifies the variation of a fund’s returns from its average (mean) return over a specific period of time. In simpler terms, it shows how much the returns deviate from the average return. A higher standard deviation indicates greater variability in returns, meaning the investment is more volatile, while a lower standard deviation indicates less variation, meaning the investment is more stable.
• Fixed Returns
  Investments that offer fixed returns can provide investors with predictable income. For example, bonds or fixed deposits usually lock in at a fixed rate for the invested time period.

5 Low-to-No-Risk Investment Options to Grow Your Fund

1. Fixed Deposits

A fixed deposit(FD) is a product where the investor deposits a lump sum at a fixed interest rate, for a specified time period. At the end of the time period, you get your invested principal back. Different banks may pay the interest either at the start or at the end of the period. FDs are one of the world’s most popular investment options that provide guaranteed returns. It is seen as the safest and finest alternative for long-term investing.

The key benefit of investing in FDs is their low risk and fixed returns, making them an attractive option for conservative investors.

2. Money Market Funds

Money market funds(MMFs) are a type of unit trust that invests in highly liquid, short-term debt securities. These high-credit-rating, debt-based assets with short maturities offer lower risk and more stability in returns.

Money market funds are highly liquid, as investors can redeem their holdings at any time via their brokerage’s digital platforms, such as POEMS.

Phillip Money Market Fund

The Phillip Money Market Fund (PMMF) aims to preserve the principal value of your investment while maintaining a high level of liquidity. This fund primarily invests in short-term, high-quality money market instruments and debt securities, such as government and corporate bonds, commercial bills, and deposits with financial institutions. The Phillip Money Market Fund has been in existence since 16 April 2001, with a zero-credit default for the past 21 years.

As of 17 March 2025, the 7-day annualised return was 2.44% p.a. for the SGD class.

3. SGS bonds

Singapore Government Securities (SGS) bonds are a perfect option for investors looking for low-risk investments. Issued by the Singapore government, these bonds have the government’s backing and credit, making them one of the safest investment options.

The bonds have a set coupon rate, which gives investors a consistent income stream paid semi-annually. Additionally, SGS bonds have a range of tenures, from 2 to 50 years, allowing investors to select an option that fits their financial goals and investment horizon.

The bonds are semi-liquid, as they are tradeable on the secondary market at certain bank branches, or through securities brokers on the Singapore Exchange (SGX). However, do note that the price of the bond may fluctuate before maturity.

For reference, the yield as of 28 Feb 2025 ranged from 2.61% for 2-year tenure, to 2.81% for a 20-year tenure.

4. SSB bonds

Singapore Savings Bonds (SSBs) are also backed by the Singapore Government, and investors are able to get their invested amount back at any time without loss of capital. Redemption is done directly, not through the secondary market. Compared to the SGS bonds, SSB bonds are offered for up to 10 years of tenure.

The interest percent for the SSB for March 2025 was 2.83% (year 1) – 3.15% (year 10)

5. T-bills

T-bills, or Treasury notes, are another great low-risk investing alternative. These are short-term financial instruments issued by the government to cover its urgent funding requirements. T-bills are regarded as almost risk-free since the government’s credit backs them.

T-bills are issued at a discount to their face value and then redeemed at face value at maturity, enabling investors to profit from the difference. Their maturities range from three months to a year and provide investors with a high level of liquidity and flexibility. Similarly to SGS bonds, T-bills can be liquidated in the secondary market through dealer banks. However, do note that the price of the T-bill may fluctuate before maturity.

Brief Comparison of Different Low-Risk Investment Options

Here is a brief comparison of the interest rate and liquidity of the listed investment options:

Conclusion