Choosing the Best SRS Investments for Higher Returns

The Supplementary Retirement Scheme (SRS) offers a unique opportunity for Singaporeans to enjoy tax savings while preparing for retirement. However, the low interest rate of 0.05% p.a. non-invested SRS funds are insufficient to keep pace with inflation and grow your retirement savings. Therefore, it's crucial to look beyond merely parking your money in the SRS account.

To maximise the potential of your SRS contributions, consider investing in a variety of financial instruments. Options such as unit trusts, ETFs, stocks, and bonds can offer higher returns, helping you build a robust retirement portfolio. A diversified investment strategy can mitigate risks and ensure your funds grow steadily over time, aligning with the long-term objective of the SRS.

Given the increasing retirement age and the phasing out of the CPF Special Account for those aged 55 and above from 2025, leveraging your SRS for investments becomes even more critical. By actively managing your SRS investments, you can significantly enhance your retirement savings and secure a more comfortable future.

Benefits of Contributing to SRS

The Supplementary Retirement Scheme (SRS) is a voluntary savings program designed to enhance your retirement funds while offering significant tax relief. This scheme complements the Central Provident Fund (CPF) and provides a flexible way to save for your golden years. 

How SRS Gets You Tax Savings

SRS contributions offer a dollar-for-dollar tax deduction on the amount saved into your SRS account. This means the more you contribute, the more you save on taxes, up to the maximum yearly contribution limit. These contributions can significantly reduce your taxable income, providing a substantial tax saving.

From the Year of Assessment 2018, the total personal income tax relief claimable in a year is capped at S$80,000. Contributions made to the SRS help maximize the total amount of tax relief you can claim. Here’s an illustration of how much you could save in taxes based on your annual income and SRS contributions:

Use our SRS calculator to estimate your tax savings with SRS contributions

9 Investment Options to Grow Your SRS Funds

There are various investment options available to grow the money in your SRS account. Shares, REITs, ETFs, and insurance products are among the most popular choices, with each category representing 25% of all SRS investments as of December 2023. Despite these opportunities, close to 19% of SRS funds are still held as cash, earning a mere 0.05% per annum and being highly vulnerable to inflation. However, the cash balance has dropped from 24% two years ago to 19%, indicating more people are investing their SRS monies in higher-return investments.

source: Ministry of Finance, Cumulative SRS statistics as at Dec 23

To maximise your SRS funds and secure a comfortable retirement, consider diversifying into different investment vehicles.

1. Fixed Deposits

Fixed deposits are a safe and straightforward option for growing your SRS funds. By placing your money in a fixed deposit, you earn a predetermined interest rate over a specified period, offering security and predictability. You can find the best fixed deposit rates in Singapore here.

As of the latest available data, here are some of the best fixed deposit rates in Singapore as of Sep 2024:

• 12-Month Fixed Deposit Rate:  DBS/POSB offers a rate of 3.20% p.a. with a minimum deposit requirement of S$1,000.
• 6-Month Fixed Deposit Rate: DBS/POSB & Maybank offer a rate of 2.90% p.a., requiring a minimum deposit of S$1,000 and S$20,000 respectively.
• 3-Month Fixed Deposit Rate: Bank of China offers a rate of 3.00% p.a., with a minimum deposit requirement of S$500.

For those looking for a hassle-free option with higher returns and flexibility, StashAway’s Simple™ Guaranteed offers an attractive return of  3% p.a.. This option stands out as it has no minimum deposit requirement, no maximum limit, and no lock-in period, providing greater flexibility compared to traditional fixed deposits.

2. Singapore Government Securities

Singapore Government Securities (SGS) and Treasury Bills (T-bills) are bonds issued and fully backed by the Singapore Government. They are considered very safe investments due to the government's AAA credit rating.

* as of Nov 2024

Treasury Bills (T-bills)

T-bills are short-term bonds issued at a discount to their face value, with the interest being the difference between the purchase price and the face value received at maturity of either 6 months or 1 year. 

T-bills are frequently launched, especially the 6-month variety, which saw 25 auctions in 2023 compared to only four 1-year T-bill auctions. Their popularity has surged in the high-interest rate environment, with yields consistently above 3% since the latter half of 2022.

T-bills can be traded in the secondary market, but prices may vary based on market conditions. To learn more about T-bills, here’s a complete guide.

SGS Bonds

SGS Bonds differ from T-bills in two key ways: they have longer maturity periods, ranging from 2 to 50 years, and they pay a fixed coupon every six months. This regular interest payment makes them suitable for investors seeking a steady income stream over a longer term.

Both T-bills and SGS Bonds provide a secure way to diversify your investment portfolio. They offer different maturities and interest payment structures to match various investment strategies and goals.

3. Singapore Savings Bonds (SSB)

Singapore Savings Bonds (SSBs) provide a simple and low-cost way to generate safe returns, fully backed by the Singapore Government. They offer more flexibility compared to other government securities like SGS bonds and T-bills. Here’s a comprehensive look at SSBs:

• Flexibility: Unlike SGS bonds, SSBs allow you to withdraw your investment without penalties at any time. 
• Step-up Interest Rates: SSBs offer a step-up interest rate, meaning the longer you hold the bond, the higher the average interest rate you receive. This incentivizes long-term holding.
• Low Minimum Investment: You can start investing in SSBs with as little as SGD 500, making them accessible to a broader range of investors.

In the most recent SSB release, you can lock in a 2.73% interest rate for a year or an average rate of 3.01% annually if you hold onto it for 10 years.

4. Robo Advisors

Robo advisors are innovative investment applications that utilise automated algorithms to deliver personalised investment solutions. These platforms are tailored to your individual risk profile and financial goals, making them a convenient and efficient option for managing your SRS funds.

When you use a robo advisor, you typically start by answering a series of questions designed to gauge your risk tolerance and financial objectives. This initial assessment helps the algorithm understand your unique situation and preferences. Based on your responses, the robo advisor then generates a customised investment portfolio that aligns with your risk level and goals.

One such robo advisor is StashAway, which offers short-, mid-, and long-term investment options to suit any investment horizon. You can easily invest your SRS funds with StashAway by linking your SRS account and setting up an investment plan that suits your financial objectives. 

5. Endowment Insurance Plans

As of December 2023, 25% of SRS monies were invested in insurance products, including endowment plans. Endowment plans offer both savings and protection, providing guaranteed returns along with potential bonuses to ensure stable growth of your retirement savings. Additionally, they offer coverage against death and total permanent disability (TPD), providing financial security for your beneficiaries.

However, SRS insurance options have drawbacks. They typically yield lower returns due to investments in low-volatility, fixed-income products. They also often require larger initial investments, as most insurance plans using SRS funds require a single premium payment. On top of that, they also have extended lock-in periods, reducing liquidity and flexibility.

Given the long investment horizon of SRS accounts, it is important to balance potential returns with your risk tolerance. While endowment plans offer safety and guaranteed returns, exploring higher-return investments can significantly enhance the growth of your SRS retirement savings.

In conclusion, endowment insurance plans provide a strategic way to grow your SRS funds while offering essential insurance coverage. However, they should be part of a diversified investment portfolio to balance safety and potential returns for meaningful growth in your retirement savings.

6. Unit Trusts

If you prefer having your SRS funds managed by professionals, consider investing in unit trusts. Each unit trust is a professionally managed fund with a specific investment mandate (e.g., in specific region; specific sector; or both).

Unit trust also helps investors to lower risks by diversifying especially when it is a collective investment. Being managed by a fund manager also means that the service comes with several fees that can potentially cut into your returns and that include but not restricted to:

• Initial service charge/ realisation fee = up to 5%
• Online sales charge (if buy online) = 0.8% to 1%
• Management fee = 1.5% to 2% of NAV per year
• Trustee fee = 0.1% to 0.15% of NAV per year 

Given the longer investment horizon for SRS funds, aiming for the highest return by the time of withdrawal is essential. Many SRS account holders have a long-term perspective, investing until the age of 63 and beyond. To maximise returns, consider:

1. Using Low-Cost Platforms: Invest through low-cost platforms like StashAway to minimise fees.
2. Allocating to Riskier Asset Classes: Focus on equities to maximise investment returns.
3. Global Diversification: Diversify across geographies and industries to minimise risk.

At StashAway, you can access diversified portfolios aligned with your risk tolerance. StashAway offers low-cost investment portfolios with fees ranging from 0.2% to 0.8% per annum. This makes it a cost-effective option for managing your SRS investments, ensuring you keep more of your returns while benefiting from professional management and global diversification.

7. Foreign Currency Fixed Deposits

In Singapore, you have two primary types of fixed deposit accounts to consider:

1. Foreign Currency Fixed Deposit: This type allows you to deposit money in a currency other than SGD. It can offer higher interest rates, especially in stronger or appreciating currencies. However, this option introduces currency risk.
2. SGD Fixed Deposit: These deposits provide stability without currency risk, making them a safer option for conservative investors. However, they generally offer lower interest rates compared to foreign currency fixed deposits.

Foreign currency fixed deposit with the likes of USD fixed deposit is appealing during favourable foreign exchange and interest rate trends, offering potential gains from both interest earnings and positive currency movements. For example, as of Dec 2024, the best US Dollar fixed deposit offered:

• 12-Month USD Fixed Deposit Rate:  HL Bank offers a rate of 3.7502% p.a. with a minimum deposit requirement of US$50,000.
• 6-Month USD Fixed Deposit Rate: Bank of China offers a rate of 4.40% p.a., requiring a minimum deposit of US$2,000.
• 3-Month USD Fixed Deposit Rate: State Bank of India offers a rate of 4.75% p.a., with a minimum deposit requirement of S$5,000.

Using SRS funds for foreign currency fixed deposits can be strategic, especially when interest rates are high. However, it's important to consider the associated risks, particularly currency risk, and ensure these investments align with your overall financial strategy and risk tolerance. This approach can help you achieve a balance between maximising returns and managing potential risks effectively.

8. Stocks and REITs

Investing directly in stocks and Real Estate Investment Trusts (REITs) listed on the Singapore Exchange (SGX) allows you to customise your portfolio according to your preferences. This hands-on approach requires active management and market knowledge but offers the potential for higher returns. You can use various brokerage platforms to invest your SRS funds, not limited to the bank where your SRS account is held.

While you can use SRS to buy most individual stocks and REITs listed on SGX, it's important to understand the complexities involved. Individual stocks and REITs are subject to corporate actions, which can complicate matters if you're not investing with cash. For example, if a company issues rights, you might need to top up your SRS account to avoid share dilution, but this could be challenging if you've reached your yearly SRS contribution limit.

Despite these challenges, there are options available for investing in shares with SRS funds. For instance, you can consider:

• OCBC Blue Chip Investment Plan
• POSB Invest-Saver
• Phillip Share Builders Plan

Some brokers handle corporate actions for you, though it's essential to check the terms of each investment account. Additionally, brokerage fees might not be favourable for small investment accounts.

However, investing in stocks can be challenging for many retail investors. A more straightforward approach for most people might be investing in unit trusts or low fees managed portfolios like General Investing by StashAway using an SRS account, as these options offer diversification and professional management.

9. ETFs

Investing your SRS funds in ETFs can be a strategic way to enhance your retirement savings due to their low cost, diversification benefits, and potential for growth. ETFs are investment funds traded on stock exchanges, much like stocks, and they typically aim to track the performance of a specific index, sector, commodity, or asset class.

Investing in ETFs offers several benefits, including broad diversification across various asset classes and sectors, such as the S&P 500, which provides exposure to the largest US companies or sector-specific ETFs like technology and healthcare.

ETFs are cost-effective, generally having lower expense ratios than mutual funds and they are highly liquid, as they are traded on stock exchanges and can be bought and sold throughout the trading day, providing flexibility. Additionally, ETFs are transparent, disclosing their holdings daily, so investors know exactly what assets they own.

Find out more on the top ETFs in Singapore and how to invest in ETFs with your SRS funds.

Making the Most of Your SRS Funds

Choosing the right investment for your SRS account can be daunting due to the variety of options, from low-risk bonds to higher-risk stocks and REITs. It's essential to consider your risk tolerance and investment goals.

Fixed deposits offer stable returns but lack flexibility and pose reinvestment risks. In contrast, unit trusts may carry higher risk but have historically provided better long-term returns, outpacing inflation.

Leaving SRS funds uninvested is risky due to inflation eroding value. Therefore, it's crucial to avoid the low 0.05% interest and make your SRS funds work harder.

Ultimately, consider your objectives, risk appetite, and time horizon. Whether you opt for safe fixed deposits or higher-risk ETFs, the key is to start investing and not let your funds sit idle. Taking proactive steps will help you maximize your retirement savings and secure a comfortable future.