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Should you save or invest your money?

What you do with your money now is more important than ever.

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The Institute of International Finance‘s latest forecast predicted a gloomy 1.2% global economic growth rate, which was last seen in 2009, after the infamous financial crisis. Similarly, the Organization for Economic Cooperation and Development (OECD) expects global growth to slow down dramatically in 2023, while inflation continues to soar.

Although the APAC region may not suffer a full-blown recession, we are unlikely to escape unscathed. The rising interest rates and sluggish growth will still impact Singapore. The recent decade saw the rise of many fintech giants and the cryptocurrency market, but the outlook for those is equally pessimistic. Tech layoffs are making headlines all over the world, and the crypto market just saw its biggest crash in years, with FTX and FTX.US filing for chapter 11 bankruptcy.

With these in mind, how should you navigate these economic headwinds? Where should you put your money – in savings or investments?

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Saving vs investing your money

Each month, when you receive your income (and after accounting for your expenses) you may have some spare money that you need to decide what to do with. You can either save the money – usually in a savings account to grow slowly – or put it to work through investments that you expect higher returns from. Although the latter sounds more lucrative at face value, there are pros and cons to each, and the ‘best’ strategy for you is likely to be unique. In this article, we’ll go into detail about both approaches so you can decide for yourself.

Growing your savings in high-interest savings accounts

If there’s one thing that’s benefitted from the repeated rate hikes in 2022, it’s the local banks’ savings account interest rates, which have risen in tandem. A good savings account should have high interest rates, in addition to low maintenance fees and minimum balances so you can grow your savings easily.

Most traditional banks have a high-interest savings account for the account you credit your salary. There are typically several tiers of interest rates, each unlocked with a specific action to be done on your part.

For example, the DBS Multiplier account rewards customers who bank heavily with DBS. After the most basic tier (salary credit), each subsequent tier is unlocked with a financial product – credit card spend, mortgage repayment, insurance policies and investments. The promotional interest rate also has a cap, and may not apply to your entire balance (e.g., for DBS Multiplier it is capped at the first $50,000 to $100,000). The OCBC 360 account works in a similar way.

Also for consideration is Trust Bank, which is a digital bank. The main difference between digital banks and traditional banks is that digital banks do not have physical branches, and all activities and transactions are to be done online. They are suited to tech-savvy consumers who are comfortable with this. There is also an upcoming Grab-Singtel consortium – GXS. You may want to keep them on your radar as they may have attractive launch incentives and products.

Compare savings accounts in Singapore

Should you save all your money?

There are many benefits to keeping your savings in savings accounts. It’s safe, and the funds will remain liquid – meaning you can withdraw them anytime in case of urgent need. However, rising inflation will chip away at your money’s purchasing power over time. Hence, in the long term, this may not be an ideal approach.

Saving is usually recommended for short-term goals and to build an emergency fund. There is no hard and fast rule, but most people keep at least three to six months of their salary’s worth in savings.

Putting your money to work through investments

So what can you do with the rest of your money? Many people look for other ways to grow their money, usually through investments that they expect high returns. Do note, however, that unlike savings accounts, which are typically insured up to $75,000 by SDIC, there are no guarantees when it comes to investments. Hence, investing is only suitable for those with the appropriate risk appetite.

Over the past few years, cryptocurrency was trending and was one of the most profitable investments. However, it is extremely high risk and volatile, and while there were many overnight millionaires, there have undoubtedly been just as many (if not more) people burnt. Not many people have the money and stomach for it. Furthermore, with the recent FTX crash, we are in the middle of a crypto winter and now may not be the best time to enter the market.

Online investing and stock trading

Typically, most people start investing with stocks and/or securities, whereby you buy a small part of a company. Your gains or losses are dependent on the company’s financial performance, although some companies pay out dividends too. Most people consider at least 10% annual returns to be a good return on investment (ROI). A key thing to remember is that such investments are more suited for those with time on their side; for long-term investments. There is no point in trying to ‘predict the market’ in the short term.

To begin investing, you can compare stock trading platforms. Some online brokerages offer competitive fees and sign-up promotions including Saxo, Interactive Brokers, Syfe and more. As many industries and companies are still recovering from the recent Covid-19 pandemic, the market is still down. If you have time, you may want to consider entering the market to capitalise on its recovery. Again, there are no guarantees, so your best bet would be established companies with strong fundamentals that you have confidence in.

  • Minimum and commission fees
  • Market access (e.g., SGX, NYSE, etc)
  • Products (e.g., stocks, unit trusts, ETFs, etc)
  • CDP-linked or custodian account

Aside from financial considerations, you can also think about whether you like the platform’s user interface (since you’ll be spending time on it), and whether there are any other perks for using the broker (e.g., extra insights, incentives, etc).

It’s important to choose a MAS-regulated broker if you’re worried about what will happen if the platform goes bust.

How much money should you invest?

Since your principal is never guaranteed, it’s clear that you should never invest all your extra funds (unless you’re prepared to lose it all).

How much, then, is a good amount to invest? It depends largely on your personal risk appetite and how much buffer you have, but generally, experts recommend 10% to 15% of your income. Of course, if after accounting for your necessities and setting aside your savings, you still have funds, you can consider investing more.

Compare stock trading platforms in Singapore

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