If you're looking for an easy way to manage your money, you may want to consider a savings account–an option offering notable interest rates while maintaining accessibility. Understanding the different types and structures available is essential to finding the savings account that's best for you.
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What is a Savings Account?
Savings accounts provide consumers with the opportunity to earn money on deposits they make to their bank, according to set interest rates. Accounts vary in complexity and structure, catering to different needs and saving styles, but also share many of the same basic principles. Deposits can be made online, over-the-counter, or auto-credited from a monthly salary, and interest is earned based on the average daily balance of the account, within each 1-month period.
Interest is rewarded in very different ways, however. The most basic accounts offer a flat interest rate across deposits of any size, without additional qualifications. Others offer tiered interest rates according to the total balance size. Another method is by using bands within a deposit size–the first S$5k may earn at one interest rate, while the next S$10k earns at another (and so on). Finally, some accounts incentivise continued growth by offering high interest rates specifically for "incremental growth" (the difference between the current and previous month's balance).
|Methods of Structuring Interest Rates|
|Basic||Earn 0.15% p.a. on your monthly balance, regardless of size|
|Tiered||Earn 0.15% p.a. on balances of < S$10,000, 0.20% p.a. on balances of S$10,000+|
|Banded||Earn 0.15% p.a. on the 1st S$10,000 of your balance, 0.20% p.a. on the next S$10,000, and 0.25% p.a. on any amount beyond|
|Incremental||Earn 0.15% p.a. on your balance and 0.25% on the increase between last month and this month's balance|
Another thing that stands out about savings accounts is their fluidity. It's fairly easy to make withdrawals whenever needed. Nonetheless, some accounts' rewards structures primarily reward consumers who don't make withdrawals–doing so can then dramatically reduce interest rates for that month. Additionally, nearly all banks have a minimum average daily balance requirement (often about S$1,000), and withdrawing too much can result in a small "fall below fee" (about S$2 per month).
Savings Accounts v. Current Accounts v. Fixed Deposits
Savings accounts, current accounts, and SGD fixed deposits all offer ways to manage your money with varying degrees of accessibility. While each has merit, they are–for the most part–suited for different needs and circumstances.
Current accounts are the most fluid amongst these options, and are primarily used as transactional accounts. They are often linked to debit cards to make payments, and can also be used for online banking. Unlike savings accounts, they rarely offer interest rates; those that do offer 0.25% p.a. at the most. Savings accounts, on the other hand, offer much higher rates, in some cases over 3% p.a.
Fixed deposits, on the other hand, offer moderately attractive interest rates, but are far less fluid. Deposits are held for a specified amount of time (usually 3+ months), and while money can be withdrawn, doing so usually means interest earned to date will be forfeited.
Overall, savings accounts bridge the gap by allowing consumers to earn meaningful interest, while also preserving accessibility.
|Current Account||Savings Account||Fixed Deposit|
|Accessibility||High||High / Moderate||Low / Moderate|
|Interest Rate||0.00%–0.25% p.a.||0.05%–3.88% p.a.||0.92% p.a. (Avg)|
3 Main "Types" of Savings Accounts
Savings accounts in Singapore tend to have one of the following structures: basic 'no frills', multi-product promotion, and incentivised growth:
- Basic accounts are fairly low-maintenance and straightforward. Deposits earn interest on a monthly basis, and rates are determined by the size of the average daily balance. These are a great option for young adults, as several waive "fall below" fees and have lower minimum age requirements.
- Multi-product accounts offer bonuses that boost interest rates for consumers who have loans, insurance, or investments with the same bank.
- Incentivised growth accounts, on the other hand, offer high interest rates on increased balance sizes from month-to-month, and may reward consumers who make consistent deposits without withdrawals.
It's worth mentioning that more complex savings accounts tend to offer much higher potential interest rates. However, they can also be challenging to navigate, so understanding plan details is key to maximising your interest.
Risks and Benefits of Savings Accounts
Savings accounts are very low risk. There are rarely any annual or monthly service fees, and while most have minimum deposit requirements, the "fall below" fee is usually just S$2. However, there are a few less obvious risks. Not all savings accounts are straightforward. Many have contingencies, making it difficult to figure out which interest rate you actually qualify for. In addition, keeping track of the various criteria needed to earn top interest rates can be stressful and confusing. It's easy to lose out on potential earnings, especially with accounts that are a bit more complicated.
Nonetheless, these risks are fairly minimal, and can be mitigated simply by understanding your own savings account. It's worth reviewing several options on the market to identify which best fits your needs, in terms of both interest rates and convenience.