T-Bills: What Are They, and What Other Investments Are There for Rookie Investors in Singapore?

This was originally posted on Planner Bee.

In December 2022, treasury bills, or T-bills as they are commonly known, made headlines in Singapore for hitting a whopping 4.40% cut-off yield, with the average yield being 4%.

It marked a period where T-bills’ spectacular returns outperformed many similar products, such as fixed deposits offered by various banks. Many people scrambled to subscribe to the 6-month T-bills offered by the Singapore government, and even though the returns have since dipped, they remain very attractive as a short-term investment product.

In this piece, we will look into why T-bills are attractive to rookie investors, the alternative kinds of investments available, and what rookie investors should look out for.

What are T-bills?

Treasury bills, or T-bills, are short-term Singapore Government Securities (SGS) issued at a discount to their face value. Investors receive the full face value at maturity. The Singapore government issues 6-month and 1-year T-bills.

Why are T-bills popular with rookie investors?

As a fuss-free kind of investment that is relatively safe, T-bills are very attractive for rookie investors. They are also a sought-after investment product with seasoned investors.

With a sovereign credit rating of AAA, Singapore’s T-bills have strong creditworthiness with a minimal probability of default. This means T-bills are among the safest possible investments to hold. Adding T-bills into their investment portfolio helps some investors balance their portfolios and bring down overall risk levels.

However, they are even more attractive to rookie investors as they have/are:

• Low barrier to entry

The minimum amount to invest in T-bills is S$1,000, making it easy for many rookie investors to start. T-bills are sold in multiples of S$1,000, and are a one-time purchase, allowing investors to purchase the amount they are comfortable with.

• Convenient to purchase

T-bills can be purchased with cash, Central Provident Fund Ordinary Account (OA) and Special Account (SA) savings, or Supplementary Retirement Scheme (SRS) funds.

Cash purchases can be easily applied via local banks’ internet banking portals as long as a

Central Depository (CDP) account is linked to the bank account you intend to invest with.

Read more: All You Need To Know About Treasury Bills

• Low risk

With a sovereign credit rating of AAA, T-bills have a minimal probability of default, making them one of the safest investment products in Singapore.

Pros and cons of investing in T-bills

Every investment has its pros and cons. Even though T-bills are marketed as a low-risk investment, it’s hard to call them the best (or thankfully, worst) investment product in the market.

Here are some of the pros and cons when it comes to investing in T-bills:

Alternative investments similar to T-bills

Singapore Saving Bonds (SSBs), fixed deposit accounts, and high-yield savings accounts are similar investment products that you can consider.

Singapore Saving Bonds (SSBs)

Fully backed by the Singapore Government, Singapore Saving Bonds (SSBs) allow you to invest for up to 10 years with interest that increases over time. With SSBs, you can always get your investment amount back in full with no capital loss.

It is a flexible form of investment, meaning you can choose to exit at any given month, with no penalties, and you do not have to decide on a specific investment period at the start.

With the highest credit rating of AAA, SSBs’ interest rates are set by the Monetary Authority of Singapore (MAS) to increase yearly. Should you hold onto them for the 10-year duration, SSBs’ interest rates do not fluctuate like T-bills’ does according to market conditions.

Starting from as little as S$500, it is a good investment for new investors to start with, especially those with less liquidity.

Fixed deposits

A fixed deposit account offers guaranteed interest rates in exchange for holding your money for a period of time. The interest rate is fixed based on a rate contracted when the funds were first deposited and is usually higher than a regular savings account.

Flexibility in tenure options, ranging from as low as three months, is one of the reasons why people subscribe to a fixed deposit. Once the agreed period ends, customers will receive their initial funds plus interest back.

Here are some of the more competitive fixed deposit accounts available as of September 2024 below:

Fixed deposit liquidity is lower than SSBs, as early withdrawal may result in penalties or loss of earned interest. Fixed deposit accounts are typically offered by banks and are suitable for investors seeking stable returns with very low risk.

High-yield savings accounts

Designed to help customers earn more on their deposits, high-yield savings accounts are bank accounts that offer a higher interest rate compared to standard savings accounts.

To enjoy the higher interest rates yet have the liquidity and safety of a traditional savings account, these accounts often come with specific conditions that must be met. This could mean minimum deposit amounts, crediting salary directly into the account, spending on linked credit cards, and/or maintaining a specific balance.

Examples of high-yield savings accounts in Singapore include:

• OCBC 360 Account

Meeting the monthly conditions will give OCBC 360 account holders a maximum of 7.65% per annum interest on their first S$100,000. The conditions include crediting salary, increasing savings by a minimum of S$500, charging at least S$500 on an eligible OCBC credit card, purchasing an eligible insurance product, and investing in an eligible investment.

• UOB One Account

Meeting a minimum card spend of S$500 monthly and crediting your salary to the UOB One account will give you 3% interest for the first S$75,000, which will raise to 6% for the first S$150,000 in your account.

• Standard Chartered Bonus$aver Account

Offering up to 7.68% p.a. bonus interest, the Standard Chartered Bonus$aver Account requires you to credit your monthly salary, hit the minimum spending amount, make at least three bill payments online monthly, invest and insure in eligible products to qualify for the maximum amount of interest.

• DBS Multiplier Account

You can earn up to 4.1% interest per annum with a DBS Multiplier Account by crediting your salary into the account, retail spending with an eligible DBS credit card or via PayLah!, purchasing an eligible insurance and/or investment product, and taking up a DBS/POSB home loan installment.

What should rookie investors look out for?

Investing is a powerful way to grow your wealth over time, but it’s important to approach it with knowledge and a well thought-out strategy, especially if you are a rookie investor.

Understand the basic concepts around investing, such as risks and returns, diversification, and inflation risks, before throwing your money in. Learn about different investment asset classes like stocks, bonds, ETFs, and real estate, and know which suits your risk tolerance better.

Set clear goals by determining what you want to achieve with your investments. Define your time horizon and know if you are saving for retirement, buying a home, or generating passive income.

Read more: 5 Costly Investment Mistakes You Should Avoid

Begin investing with a small amount of money that you can afford to lose. This way, you can take some time to be comfortable with the market and its fluctuations without significant risk. Avoid putting all your money into one asset or market and diversify across different asset classes to reduce risk.

Especially for those new to investing, avoid trying to predict market movements, and focus on long-term investing. Regular and consistent investments can smooth out volatility through a strategy known as dollar-cost averaging.

Be wary of investments that promise high returns with little risk. These are often too good to be true and can result in significant losses. Keep up with market news and economic developments, but avoid reacting to every piece of news.

The power of compound interest works best over time. The earlier you start, the more your money can grow. If you want to talk to a financial adviser, feel free to drop us an email at [email protected] today!