Safe Alternatives for Your Savings as Interest Rates Come Down

Money market funds, fixed deposits and T-bills are among options experts suggest

- Chor Khieng Yuit

Depositors were in a sweet spot in late 2022 as banks went on an aggressive push to get more deposits by raising interest rates on savings accounts.

At that time, UOB was paying as much as 7.8 per cent per annum on its One Account, OCBC Bank was offering up to 7.65 per cent per annum on the 360 Account, and the maximum interest rate for the DBS Multiplier was, and still is, 4.1 per cent.

Fast-forward to 2025, the rates on the UOB One and OCBC 360 are coming down from May 1.

UOB cut rates once on May 1, 2024, and will do so again on May 1, 2025, so UOB One customers will earn up to 5.3 per cent on their first $150,000 or a maximum effective interest rate of 3.3 per cent, down from 4 per cent currently.

OCBC followed suit and will be cutting the rates on its 360 Account on May 1, so the maximum effective interest rate will be 6.3 per cent on the first $100,000.

With these interest rates on the way down, Mr Aaron Chwee, head of wealth advisory at OCBC, said depositors may want to "consider a layering approach to make better use of their excess funds".

Mr Chwee said they can divide their funds into three buckets:

• One for immediate needs and emergencies

• One for short-term needs over the next six months

• One for medium- or longer-term needs over the next six to 24 months

He noted that money for immediate needs or emergencies could be kept in a high-yield savings account.

Some of these accounts offer bonus interest rates to depositors to stay with a bank for their investment and insurance needs.

In this way, the depositor kills two birds with one stone. He earns interest on his cash savings. At the same time, he gains extra interest from investing in selected products like unit trusts or buying selected insurance policies, such as endowment or single-premium plans, from the bank, Mr Chwee said.