My cash management strategy (BTO + Savings + Emergency Funds + Investment Funds)

This post will cover my strategy on cash management and how I apply some financial concepts into practical use.

Since the landscape is always changing and everyone has different needs, goals and risk tolerances, this might not fully apply to you, but it should hopefully give you some idea on how to navigate this space.

This post comes amid a landscape of falling bank interest rates especially for the ones that don’t require special conditions such as salary crediting and credit card spend.

Bank interest rates as of July 2020. Credits: Seedly

When we compare fuss-free high yield savings accounts without special requirements, then a few like Stanchart Jumpstart and CIMB FastSaver come to mind.

Singapura Finance
Vivid Account
CIMB FastsaverSCB JumpStartRHB HYSA Plus
Features:
Projected Annual Yield (net of fees)1.05% (first $10K)
1.30% (next $10K)
0.25% (above $20K)
0.50% (first $50K)
0.80% (next $25K)
1.50% (next $25K)
0.40% (above $100K)
1% (first $20K)
0.1% (above $20K)
1.05% (first $50K)
1.55% (next $25K)
2.0% (next $25K)
0.60% (above $100K)
Underlying InstrumentsBank DepositBank DepositBank Deposit
Minimum Initial Top Up$500$1,000$1,000
Minimum Subsequent Top Up
Minimum Balance$200$1,000$1,000
Limits on Interest Balance
Lockup Period
Withdrawal Minimum
Sales Charges
Average Fund Level Fees
Transaction Charges
Platform/Management Charges
Withdrawal/Exit Charges$3 (OTC only, waived till eoy)
CashYesYesYesYes
SRSNoNoNoNo
CPFNoNoNoNo
A quick comparison table between some high yield savings accounts

A look at Singapore Savings Bonds (SSBs)

At the same time, safe alternatives such as SSBs with limited restrictions on cashing out and no loss of capital have also similarly fallen in yields and are now yielding less than 1% in average return over 10 years.

SSB’s August 2020 issuance.

The real return, net of long-term inflation of 2% makes it a negative yielding investment in the long term. Holding them in the short term yields 0.27% for 1 year and 0.35% for 2 years, which is below what bank deposits are yielding too.

In my opinion, the recent SSBs are unattractive.

Then there’s…cash management solutions

The cash management landscape has been popularised by robos that have incorporated some of these solutions into their products at a much competitive offering than incumbents, mainly because they have a lower total cost of ownership.

Owning cash management solutions through robos rather than fund platforms like FSM One will might give you a better interest rate because robos might rebate trailer fees or own the fund at a share class with lower management fees.

StashAway SimpleEndowus Cash Smart CoreEndowus Cash Smart EnhancedFSM One AutoSweep
Features:
Projected Annual Yield (net of fees)1.90%1.1%-1.3%1.9% – 2.2%0.99%
Underlying Instruments50% LionGlobal SGD Money Market Fund
50% LionGlobal SGD Enhanced Liquidity Fund
50% Fullerton SGD Cash Fund
50% LionGlobal SGD Enhanced Liquidity
50% UOB United SGD Fund
50% LionGlobal SGD Enhanced Liquidity
45% LionGlobal SGD Enhanced Liquidity
40% Fullerton SGD Cash Fund
15% Cash
Minimum Initial Top Up$0$10,000 (across all its products)$10,000 (across all its products)$50
Minimum Subsequent Top Up$0$100$100$50, $100 for recurring
Minimum Balance$0$0$0$0
Limits on Interest BalanceUnlimitedUnlimitedUnlimitedUnlimited
Lockup PeriodNoneNoneNoneNone
Withdrawal Minimum$0$100$100$50
Sales Charges
Average Fund Level Fees0.205% (net of rebates)0.18% (net of rebates)0.30% (net of rebates)tbd
Transaction Charges
Platform/Management Charges0.05%0.05%0.20%
Withdrawal/Exit Charges
CashYesYesYesYes
SRSYesYesYesNo
CPFNoNoNoNo
A quick comparison table between popular cash management products

Don’t forget insurance savings plans

There are also insurance savings plans like Singlife, Etiqa Elastiq and Dash EasyEarn, offering slightly higher interest rates but they might come with some conditions like a minimum top up and minimum balance and also perhaps come with a non-participating whole life insurance plan.

Singlife AccountEtiqa ElastiqDash EasyEarn
Features:
Projected Annual Yield (net of fees)2.5% (first $10K)
1% (next $90K)
0% (above $100K)
1.80% (first 3 years)2% (first year consisting of 1.5% + 0.5% bonus)
Underlying InstrumentsInsurance Savings PlanInsurance Savings PlanInsurance Savings Plan
Minimum Initial Top Up$500$500$2,000
Minimum Subsequent Top Up$0$500$500
Minimum Balance$100$500$2,000
Limits on Interest Balance$10,000$200,000$20,000
Lockup PeriodNone90 daysNone
Withdrawal Minimum$0$500$100
Sales Charges
Average Fund Level Fees
Transaction Charges
Platform/Management Charges$5 service fee if daily account value is below $5000
Withdrawal/Exit Charges$0.70 per transaction (to bank account)
CashYesYesYes
SRSNoNoNo
CPFNoNoNo
A quick comparison table between some non-participating insurance savings plans

My strategy for cash management

With the above in mind, obviously not an exhaustive list, how would I channel my cash funds that I am not using for longer term investments?

I divide the cash that I have into bigger goals – what do I need the cash for? Because cash should not be kept just for the sake of keeping, there has to be a very clear reason for keeping so much cash.

1st pot – emergency funds

The first pot of cash I have is for emergency funds of 6 months’ my monthly expenses. Experts advise between 6 to 12 months of emergency funds for emergency use, such as a layoff or hospitalization need, which are rare occasions but for the times you really need to have extra cash, the peace of mind that you have cash at your disposal is very powerful.

This pot of cash previously sat in my Stanchart Jumpstart account yielding 2% but has now been shifted to the Singlife Account (2.5% up to $10K balance, review here) which has no lock-in period, quick deposits and quick withdrawals.

Since this pot of cash requires fast access, I cannot put it anywhere else other than something close to a bank account, and since most banks are offering sh*ty rates, Singlife is a good option without any special conditions.

2nd pot – cash for spending/checking

The second pot of cash is the cash I need for my daily expenses, food and grocery expenditure, credit card payments etc.

I keep 1.5 to 2 months worth of spending in cash sitting in bank accounts or eWallets just to help me meet my daily liquidity needs. These funds used to sit in my Multiplier Account and UOB One account for the higher interest rates, but ever since my new company credits salary without the SAL code I no longer qualify for salary crediting requirements.

To keep it simple, I just chose the account that gives me the easiest ease of use for transacting payments with friends, family and merchants and DBS Multiplier combined with PayLah! is currently my preferred choice.

3rd pot – BTO funds (or any 2-5 year goal funds)

The third pot of cash I have is for funds that I need some time in the next few years with some uncertainty in timing, and I cannot afford to lose 20%-30% of capital during a market crash like we saw in March 2020.

So assume one use case is BTO down-payment or house renovations. This pot of funds goes to something low risk and if possible, earn a return as close to inflation as possible so that the real return on these funds is zero to slightly positive.

I could put them in a bank account but that would decrease the purchasing value of the money. I could also lock them into a 3-year endowment plan but because because there’s some uncertainty in the timing that I need access to these funds, a fixed-date maturity plan wasn’t an option.

For these funds, I chose to use a cash management solution like Endowus’ Cash Smart (intro here) – taking a slightly higher risk over conventional bank deposits but still relatively safe after accounting factors such as maximum draw down, maximum loss, diversification of portfolio, months to recovery etc. It yields 1.9%-2.2% so it can help me keep up with inflation as well.

My Endowus Cash Smart Portfolio

4th pot – investment funds to be deployed

The last pot is for investment funds sitting in cash, obviously the lowest priority but sometimes could be the biggest in % of my total portfolio, especially if I close a position recently.

One consideration for these pot of funds is that there’s a need to weigh the trade offs between yields and access to liquidity when I need them.

Places with quick access to funds like bank deposits have much lower yields while those that might offer higher yields might require some lock up or longer time to access your funds (up to a week for cash management solutions and up to a month for SSBs).

For investments, sometimes the opportunity in the market is so short you’d need very rapid access to these funds.

After weighing all the options, I chose to park them in another cash management solution – StashAway Simple (review here) that has a waiting time of about 1 week to access my cash funds after liquidating them.

While waiting for them to be liquidated, I might use the cash in my emergency funds (which is why sometimes I keep more than 6 months of expenses inside) to tide over my liquidity requirements in the immediate term.

This way, I can achieve higher cash yields on my cash while maintaining flexibility in access whenever I need the cash for investments.

Final thoughts

The landscape changes very quickly, new products are launched almost every month and interest rates are quite dynamic, so this strategy might be quickly outdated after a few months.

The concepts though, won’t change, and there’s always the need to weigh trade-offs and manage cash in terms of liquidity, yields and risks.

Read also: Where should I park my cash?

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