Complete Guide to the Best Cash Management Accounts in Singapore

As the financial landscape evolves, Singapore has seen the emergence of cash management accounts as a dynamic alternative to traditional savings avenues. Offering a blend of liquidity and potential for higher yields, these accounts represent a shift towards more agile and profitable ways of managing short-term savings. Traditionally favored savings and fixed deposit accounts, with their rigid structures and fluctuating interest rates, are no longer the sole options for savvy savers seeking both security and growth.

Cash management accounts, introduced by innovative wealth management platforms like Stashaway and online brokerages, have quickly carved out a niche in the market. They appeal to those looking for a sweet spot between the modest returns of bank savings and the flexibility that comes without the lock-in periods of fixed deposits. With competitive interest rates that outshine conventional offerings, cash management accounts are becoming an increasingly popular choice for individuals aiming to optimise their financial holdings without compromising on accessibility.

What Exactly is a Cash Management Account

A cash management account is not just another type of bank account. Instead, it represents a sophisticated financial service typically provided by non-bank financial institutions, including investment platforms and brokerages. The essence of a cash management account is to offer investors a way to earn interest on cash that might otherwise sit idle, doing so by investing in low-risk assets like money market funds and short-term bond funds.

How Cash Management Account Works

When you deposit money into a cash management account, your funds are allocated across various financial instruments such as bank deposits, money market funds, and short-term bonds. This diversification aims to strike a balance between earning a higher interest rate than traditional savings accounts while maintaining minimal risk exposure. The underlying investments are chosen and managed by professionals, aiming to provide liquidity and stable returns.

Features and Benefits of Cash Management Accounts

• Flexibility and Liquidity: One of the hallmark features of cash management accounts is their high level of liquidity. Investors can withdraw their funds without facing lock-up periods, making cash management accounts ideal for short-term savings or emergency funds.
• Investment with Lower Risk: Unlike direct investments in the stock market or other high-risk vehicles, cash management accounts offer a conservative investment path. They aim to protect your capital while still providing a return that typically exceeds what's available through conventional savings accounts.
• Accessibility: Cash management accounts are easily manageable online, aligning with the digital banking preferences of modern consumers.
• Cost Efficiency: A significant advantage of cash management accounts is their generally lower fee structure compared to other financial products.

Understanding Money Market Funds and Bond Funds

When navigating the terrain of cash management accounts in Singapore, understanding the nature of money market funds and bond funds is paramount. These investment vehicles are central to the operation and value proposition of cash management accounts, offering a blend of safety, liquidity, and potential for higher returns compared to traditional savings accounts.

What Exactly Are Money Market Funds and Bond Funds?

• Money Market Funds are investment vehicles that pool money from various investors to purchase high-quality, short-term debt securities. These include treasury bills, commercial paper, and certificates of deposit. The aim is to offer investors a safe place to invest easily accessible cash resources while providing returns slightly higher than those of a regular savings account.
• Bond Funds, on the other hand, invest in longer-term debt securities issued by governments, municipalities, and corporations. These funds aim to generate income for investors by collecting the interest payments on these securities. The risk and return profile of bond funds can vary widely depending on the issuers' creditworthiness and the duration of the investments.

The Funds That Cash Management Accounts Typically Invested In

Cash management accounts in Singapore typically invest in a variety of Singapore-dollar denominated money market and bond funds. These funds are selected based on their potential to offer higher yields, liquidity, and safety. Some of the popular funds include:

Underlying Funds of These Money Market Funds and Bond Funds

The investment strategies and compositions of these funds vary, with some focusing on safer bank deposits and others venturing into T-bills, corporate bonds, and even interest rate securities for potentially higher returns.

Funds Performance

In the assessment of money market fund performance, several key metrics offer investors a comprehensive view of the fund's characteristics and potential risk-return profile

• Weighted Duration reflects the average time it takes for the securities within the fund to mature, weighted by their relative sizes within the portfolio. This metric is crucial because it helps investors understand the fund's sensitivity to interest rate changes. A shorter duration generally indicates less sensitivity to interest rate fluctuations, implying lower risk.
• Average Credit Rating provides insight into the credit quality of the securities held by the fund. Ratings are assigned by credit rating agencies and range from high (AAA) to low (C or D). A higher average credit rating suggests that the fund invests in more creditworthy (lower risk) securities, which are less likely to default on their obligations.
• Gross Yield is a measure of the fund's income (such as interest payments) divided by the value of its assets, before the deduction of any fees. It offers an indication of the return investors might expect from the fund over a given period, making it a critical factor for comparing the potential income generation across different funds.
• Expense Ratio represents the annual fee that fund managers charge to manage the fund, expressed as a percentage of the fund's average assets under management. This fee covers operational costs, including management, administration, and marketing. A lower expense ratio means fewer costs are deducted from the fund's assets, potentially leading to higher returns for investors.

Cash management accounts in Singapore

To invest in the funds listed above, utilizing cash management accounts offered by various platforms can be an effective strategy. These platforms invest in a range of funds with the aim of maximizing returns for investors by leveraging the strengths of each fund. Below is a detailed breakdown of the platforms and the specific funds they invest in, providing a clear view of your options and how you can diversify your investments:

Considerations for Choosing a Platform

When deciding which platform to use for purchasing a money market or bond fund, consider the following factors: 

• Projected Returns: The returns of the cash management accounts depend on the performance of the underlying funds. 
• Platform Fees: Some platforms charge fees for managing your funds, while others do not. Understanding the fee structure is essential for managing costs.
• Withdrawal Times: The liquidity of cash management accounts is a key advantage. Consider the platform's processing times to ensure they meet your liquidity needs.
• Supported Source of Funds: Depending on your investment strategy, the ability to invest cash or Supplementary Retirement Scheme (SRS) funds might be important.

Stashaway Cash Management Accounts

StashAway offers a trio of cash management solutions designed to cater to different investor preferences and financial goals. Each product—Simple Guaranteed, Simple, and Simple Plus—offers a unique approach to managing your cash, balancing between guaranteed returns, risk levels, and liquidity. Here's a closer look at each of these cash management solutions:

Simple Guaranteed

Simple Guaranteed is tailored for investors looking for security and predictability in their returns. With the principal and interest amounts guaranteed, subject to the risk of the underlying bank, it's a solid option for those wary of market fluctuations.

Simple Plus

Simple Plus is designed for those seeking higher yields without a lock-in period, though a minimum holding period of 12 months is recommended to optimise returns. It invests in a diversified mix of funds, offering exposure to both liquidity funds and short-term bond funds for an ultra-low risk profile.

Simple

Simple offers a projected rate of 3.40% p.a., appealing to investors seeking a blend of attractive returns and liquidity. With no lock-in period, it provides flexibility for investors to access their funds when needed, all the while investing in ultra-low-risk funds.

Comparing Cash Management Accounts and Other Safe Investments

Cash management accounts in Singapore have carved out a niche for themselves as an appealing alternative amidst the landscape of traditional safe investment options. These innovative financial products amalgamate the features of both savings and investment mechanisms, promising a more lucrative avenue for parking funds as compared to conventional choices like fixed deposits, high-interest savings accounts, Singapore Savings Bonds (SSB), and treasury bills (T-Bills). 

The allure of cash management accounts lies in their hybrid nature, merging the ease of liquidity and the allure of competitive interest rates with the diversified access they offer to a range of financial instruments.

Comparing Cash Management Accounts and Fixed Deposits

When pitted against fixed deposits, cash management accounts shine due to their superior flexibility and generally higher interest rates.

Fixed deposits are known for their rigid term structures, where withdrawing funds prematurely often results in penalties or the forfeiture of interest—a stark contrast to the fluid nature of cash management accounts, which permit investors to withdraw their money without such punitive measures, retaining earned interest.

Comparing Cash Management Accounts and High-Interest Savings Accounts

High-interest savings accounts typically come with a set of prerequisites—such as minimum account balances or specified account activities—that must be met to earn elevated interest rates. 

Cash management accounts sidestep these complexities, offering an uncomplicated path to accruing higher interest without the entanglement of conditions or balance requirements. This straightforward approach to earning interest makes cash management accounts a compelling choice for investors seeking simplicity alongside superior returns.

Comparing Cash Management Accounts and. Singapore Savings Bonds (SSB)

Singapore Savings Bonds stand out as long-term, government-backed investment products that feature step-up interest rates, ensuring a low-risk investment over time. However, cash management accounts distinguish themselves by providing more attractive and often higher interest rates coupled with enhanced liquidity. 

This positions cash management accounts as a preferable option for investors who prioritise flexibility and the need for more immediate access to their funds, without compromising on the safety of their investment.

Comparing Cash Management Accounts and Treasury Bills (T-Bills)

T-Bills are short-term government securities that offer returns reflective of prevailing market conditions, marking them as a secure, low-risk investment choice. Conversely, cash management accounts present a dynamic alternative, maintaining a low-risk profile while potentially offering higher yields. 

Moreover, cash management accounts afford investors the advantage of more frequent access to their funds, underscoring their suitability for those who actively manage their cash reserves.