4 Low-Risk Investment Alternatives to Fixed Deposits

As banks in Singapore gradually lower their fixed deposit rates, you might be considering other options to grow your money. But FDs are not the only way to earn steady interest. Here are a few other alternatives you can consider.

Joyce Chua

by Joyce Chua on Feb 9, 2024

coins in a jar

Fixed deposits (FDs) are considered one of the safest investment instruments in the market today. Particularly for risk-averse investors who do not want to gamble with their existing funds, FDs may seem like a foolproof way to ensure guaranteed returns. (Though a 3.2% interest rate is still not enough to combat mounting inflation, it still beats the 0.05% interest rates from regular savings accounts.)

However, the last few years have seen the rise of other investment options that serve as alternatives to FDs, such as government bonds, equity funds, and more. These options have grown in popularity with their return rates and relative stability that appeal to investors seeking to diversify their portfolios with less volatile assets.

Before we look at the alternatives to FDs, let’s first understand what they are.

Related: Endowment Insurance vs. Fixed Deposits: Which One Will Be Better for You?

What Are Fixed Deposits?

fixed deposits illustration
Source: Pexels

Fixed deposits are also known as time deposits. They generate guaranteed interest over a specified duration for the money that you deposit in the bank. The interest is paid out at regular intervals, be it quarterly or annually.

While you’re able to withdraw your money, doing so before the tenure is up will reap you less or even no interest at all.

FD rates differ month to month, depending on when you open your account, and the rate you earn depends on your tenure and the amount you deposit. Typically, tenures for FDs range from as short as a month to as long as four years. Naturally, more attractive interest rates will be accrued to longer tenures of at least two years.

FDs are practically risk-free, making them a low-risk investment and a good place to store your emergency funds. Plus, up to S$75,000 of your deposits will be insured by the Singapore Deposit Insurance Corporation (SDIC).

Alternatives to Fixed Deposits

Singapore Savings Bonds

stack of coins with bonds
Source: Freepik

A popular low-risk investment product is the Singapore Savings Bonds (SSB).

SSBs are a type of Singapore Government Securities (SGS) both issued and backed by the Singapore government. The interest rates for the full 10-year term are fixed and locked in upon issuance for each issue. The interest rate may differ with every month’s issue and is determined based on the average SGS yields from the preceding month.

Like FDs, SSB requires you to invest a fixed amount of cash for a specified period of time to earn returns. The tenure ranges from a month to three years for FDs, but for SSBs the interest rate increases every year to encourage investors to stay invested for longer — i.e. the longer you hold onto your SSBs, the more interest you will receive. Interest is paid out every six months and automatically credited into the bank account linked to your Central Depository (CDP) Securities account.

Investors can also use their Supplementary Retirement Scheme (SRS) funds to invest in SSBs.

Read More: Fixed Deposit Vs Singapore Savings Bonds: Which Should You Go For?

Here’s a pro-con list for SSBs at a glance.

Relatively low minimum investment amount (S$500) requiredOnly up to S$200,000 per individual
Risk-free and fully backed by the government of Singapore.Low interest rates, higher rates earned only towards the end of the 10-year tenure
High liquidity — allowed to withdraw your money any time without penalties (although you will miss out on the higher interest rates in the later years.Transaction fee of S$2 charged for each application and redemption request
Can use your SRS funds to purchase SSBsSSB interest rates change every month for every issuance

Singapore Government Securities (SGS) bonds

SGS bonds are debt securities that pay a fixed interest rate. With maturities that range from two to 50 years, they are issued to develop the debt market.

There are three categories of SGS bonds — SGS (Market Development), SGS (Infrastructure) and Green SGS (Infrastructure) — and each serve different functions. SGS (Market Development) is to develop the domestic debt market, SGS (Infrastructure) is to finance major, long-term infrastructure, and Green SGS (Infrastructure) is to finance major, long-term green infrastructure projects.

You can invest with just S$1,000 using cash, SRS or CPF funds. If you buy using cash, you will receive your interest in the bank account linked to your CDP account. If you buy using SRS or CPFIS funds, you will receive the interest in your SRS or CPFIS account.

At maturity, SGS bonds are redeemed at par value. Early redemption for SGS bonds is not allowed, but they can be sold or traded in the secondary market.

Treasury Bills

singapore bills
Source: Pexels

Like SSBs and SGS bonds, Treasury bills (or T-bills) are debt securities backed and issued by the Singapore Government.

T-bills typically have maturities of one year or even less. Like many other major economies’ bond yields, Singapore T-bills have seen increasing yields due to central banks around the world hiking up their rates in an attempt to curb inflation.

T-bills are a good option for investors who intend to set aside funds for short-term expenses like the downpayment for a house — they therefore prefer short-term commitments and do not want to take big investment risks.

For now, T-bills offer the highest rate of return compared to SSBs and SGS bonds. The latest six-month T-bills yielded 3.31% interest, up from 0.48% in January 2022, while the returns for one-year T-bills rose from 0.75% in January to 3.31% now.

As with SGS bonds, a minimum investment of S$1,000 is required for T-bills, and you can buy using cash, SRS or CPF funds. You will also redeem them at face value upon maturity. However, there is no coupon payment as T-bills are issued at a discount to the face value to begin with.

Read More: Should You Buy 6-Month or 1-Year Singapore T-Bills?

Mutual Funds

A mutual fund is a pool of money gathered from many investors and handled by a fund manager who will invest your money in securities like bonds, stocks, and short-term debt.

There are four main types of mutual funds: bond funds, stock funds, money market funds, and target date funds. Each type of fund has its own features, risks and rewards.

There are two forms of mutual funds (also known as unit trust): passive and active. For passively managed equity funds, your fund manager will first curate a portfolio of companies to invest your funds in. Index funds and ETFs are two types of passive mutual funds. For actively managed equity funds, the fund manager conducts thorough research to choose a variety of stocks that will offer the most lucrative rate of returns in order to outperform the market (though it’s hard to do so over the long term regularly). In comparison, passive index funds aim to just match the market’s performance.

Mutual funds have a high degree of liquidity — investors can sell their shares any time — but they also come with several fees, including management and operating fees, as well as shareholder fees like commissions, sales charges, and redemption fees.

Fixed maturity plans are a type of mutual funds with a fixed maturity date. When it comes to a fixed maturity plan’s maturity period, it can vary from months to years, giving you the option to choose the plan that is most convenient to your needs. While fixed maturity plans do not offer much liquidity, they offer higher rates of return against conventional fixed deposits and are less riskier.

Read More: Hedge Funds vs Mutual Funds vs ETFs – Which Should I Invest In?

Compare Online Brokerages in SingaporeFind Out More

Which One To Invest In?

piggy bank spilling coins
Source: Unsplash

To decide what to invest in, the first thing to consider is your time horizon. The shorter the time horizon, the more you should avoid risky investments. For example, in such a case, an investment asset with a short tenure and steady returns such as T-bills and short-tenor fixed deposits would better serve your investment objectives.

Conversely, if you’re looking for longer-term investments to reap higher returns, then SGS bonds (with maturity periods of two years and longer) and SSBs (with a fixed 10-year maturity date) fit the bill.

The next thing to consider is the liquidity of the assets as they determine how easily you can access their capital if necessary and whether there are any risks in doing so. So before deciding what to invest in, be sure to look at your investment goals, plan out your timeline, and buy accordingly.

Ultimately, though, the returns from the abovementioned low-risk options are unlikely to keep up with the rate of inflation in Singapore these days, so investors hoping to grow their money may need to diversify their portfolios by including riskier assets like equities.

Read More: 4 Main Investing Strategies You Should Know

Kick-Start Your Investment Journey

Now that we have a fuller understanding of SSB, you might want to continue the lookout for more investment instruments and alternatives! Visit our investments page for tips and beginner-friendly guides for you to kick-start your investment journey! We offer guidance on all things investment-related, such as stocks, bonds, options, forex and a whole lot more!

Compare Online Brokerages in SingaporeFind Out More

Read Also:

Best Fixed Deposit Rates & Promotions in Singapore

Rising Interest Rates and Returns for Singapore Savings Bonds (SSB) – Should You Start Investing In It? 

What Are Singapore Treasury Bills and Are They a Good Investment?

The Most Popular Types of Investment in Singapore (And How to Get the Most Out of Them)


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