Cash is king but should I put my money in just a savings account?

By: Zeng Han Jun, CPCG, Singapore

With all the uncertainty in the financial market right now, the old saying of “Cash is King” will definitely pop up frequently in your daily dealings.


If cash is really king right now, are you going to park your liquidity in a savings account then? You could do that but with the low interest rates, it might not be a good idea to put all your eggs in the same basket. You could try investing in money market. With an average of about 1% - 2%, it certainly beats putting it into a savings account. Although money market’s rate is definitely higher than savings account or a fixed deposit, the risk is higher too. A money market also does not ensure the preservation of the principle investment amount. Both tools are worth considering when you want to diversify. Are there any more tools to consider?


You can consider having a current linked mortgage if you are a high liquidity type of person right now. A current linked mortgage links both mortgage and a current account together and they both yield the same interest rates. It is worth taking a look at current linked mortgages that have interest rates that does not deviate much from the main stream mortgages. The interest from a current linked account can better a money market by as much as 100 to 150 basis points. Unlike a money market mutual fund, you do not have to make subsequent minimum investments, pay management fees or sales charges. A current account also guarantees your principle amount as well.


Others may argue that given a high liquidity position, I could just pay off the whole mortgage at one go. Why should I even consider such a large liquidity position? First of all, having cash allows you to source for investments with returns higher than your mortgage rate or inflation rate, whichever is higher. Secondly, with Singapore’s inflation rate at about 6% - 7%, and your mortgage {if effectively monitored} having an interest of about 2% - 3%, the cost of buying your house actually decreases over the years.


Current linked mortgages are definitely worth considering when the market is not as rosy and you cannot find a better place to park your money. They are instruments that are suitable for the sophisticated investor who monitors and adjusts his investment position periodically. You can also consider it if you have a dedicated advisor or private banker who attends to your financial needs constantly.


Talk to an advisor to find out about the different types of current linked available. Current linked is not a very widely advertised product as its market is not very well developed yet. So far only one local Singaporean bank offers this type of product. Ask your advisor to introduce to you some of the better current linked in the market as he or she may be more familiar with these types of products.


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