Is the 1-year T-bill better than the 6-month T-bill and fixed deposits?

What happened?

After the surge in applications for the latest 6-month Singapore T-bill, many investors have also taken notice of the upcoming 1-year Singapore T-bill auction on 19 October 2023.

After all, while the 6-month Singapore T-bill auction takes place every two weeks, the 1-year T-bill auction only happens once every three months.

This led to numerous questions about whether it might be worthwhile participating in the 1-year T-bill auction (BY23103V).

Let us look at a few indicators to understand what is the expected yield on the 1-year T-bill, and whether it might be a better investment compared to the 6-month T-bill and fixed deposits. 

What is the expected yield on the 1-year Singapore T-bill?

Looking at daily market prices published by the MAS, the yield on the 1-year Singapore T-bill has been at about 3.83% over the past week.

This is higher than the cut-off yield of 3.74% in the previous auction on 27 July 2023.

As we can see from the chart below, the yield on the 1-year Singapore T-bill jumped in late September after the US Federal Reserve signaled that interests rates might stay higher for longer. 

As US government bond yields moved up, Singapore government bond yields also rose, albeit to a smaller extent. 

Buying Singapore 1-year T-bill using cash – Better than fixed deposit?

With higher yields on the Singapore T-bills, Singapore banks have also been raising their fixed deposit rates to attract customers. 

Recently, we saw that UOB raised its 1-year fixed deposit rate to 3.10% per annum from 2.7% earlier.

The best 1-year fixed deposit interest rate currently stands at 3.60%, offered by RHB and HL Bank.

This would be lower than the latest closing yield on the 1-year T-bill of 3.83%, as well as the cut-off yield in the previous 1-year T-bill auction.

Also, the minimum deposit to earn the fixed deposit interest rate of 3.60% p.a. is S$20,000. However, you can start investing in the 1-year T-bill with just S$1,000. 

While USD fixed deposits offer a higher interest rate of up to 5.25% p.a., you may face the risk of foreign currency losses if the US dollar were to weaken compared to the Singapore dollar in the coming months. 

Buying Singapore 1-year T-bill using cash – Better than savings accounts?

Singapore banks have also been raising the interest rates on savings accounts in recent months.

For example, CIMB FastSaver is offering a promotional interest rate of 3.50% per annum, and Standard Chartered eSaver is offering a promotional interest rate of 3.50% p.a. for fresh funds. 

The closing yield on the Singapore 1-year T-bill of 3.83% is higher than the interest rate offered by these savings accounts.

You will also be able to lock-in the interest rate on the T-bill, while the interest rate on savings accounts are subject to change. For example, the promotional interest rate on the Standard Chartered eSaver account is only valid until November. 

However, savings accounts offer you more flexibility as you are able to withdraw your deposits anytime. 

On the other hand, you may face capital losses if you decide to sell the 1-year T-bill prior to maturity. 

Buying Singapore 1-year T-bill using cash – Better than SSB?

The interest rates on the Singapore Savings Bond (SSB) have also been rising. The latest SSB (SBNOV23 GX23110V) offers a 1-year interest rate of 3.21%, and a 10-year average interest rate of 3.32%.

This would mean that the closing yield on the 1-year T-bill is higher than the 1^st-year interest rate on the SSB. 

However, the SSB allows us to lock-in interest rates for a longer period of time compared to the 1-year T-bill. 

Buying Singapore 1-year T-bill – Better than 6-month T-bill?

The other option we can consider is to invest in two separate tranches of the 6-month, rather than in the 1-year T-bill. For example, we can invest in the upcoming 6-month T-bill auction on 26 October, and re-invest the funds when the T-bill matures in six months’ time.

In the most recent 6-month T-bill auction on 12 October, the cut off yield was at 3.87%, falling from 4.07% in the previous auction. 

This is quite similar to the current closing yield of the 1-year T-bill of 3.83%.

However, we may face re-investment risk by investing in the 6-month T-bill if bond yields were to fall sharply in 6-months’ time.

This does not seem to be what investors are expecting currently, with Federal Reserve officials signaling that there might even be another rate hike this year.

According to the CME Fedwatch tool, investors are expecting the US benchmark interest rate to stay at current levels until May 2024, and the first rate cut to happen only in June next year. 

However, a sharp global recession may cause the Fed to cuts its interest rates sooner than expected.

Buying Singapore 1-year T-bill using CPF – Is it worth it?

To minimise the loss of additional CPF interest, it is generally more worthwhile to use your CPF funds to invest in T-bills with longer maturities. 

With the T-bill auction date on 19 October 2023 and maturity date on 22 October 2024, we can make sure we lose only one additional month of CPF interest by being prompt in transfering funds back to our CPF OA account when the T-bill matures. 

Assuming the loss of one additional month of CPF interest, our calculations show that the breakeven cut-off yield for T-bill applications using CPF OA falls to about 2.7% for a 1-year T-bill from 2.9% for a 6-month T-bill.

To find out how much more interest you can potentially earn on your CPF savings by investing in the T-bill, check out our CPF-Tbill calculator. 

What would Beansprout do? 

We would consider the 1-year Singapore T-bill to make our savings work harder. 

Despite the rise in fixed deposit rates in recent weeks, the closing yield on the 1-year T-bill of 3.83% is still above the best 1-year fixed deposit rate of 3.60% currently. 

There is also no foreign currency risks compared to US dollar fixed deposits which may offer an interest rate of up to 5.25% p.a.

The closing yield is also higher than the promotional interest rate offered by some savings accounts, such as the CIMB FastSaver and Standard Chartered e-Saver. 

With the yield on the 1-year T-bill being quite close to the 6-month T-bill, the key advantage of the 1-year T-bill is that is allows us to lock in interest rates for a longer period of time. 

While the closing yield on the 1-year T-bill looks attractive, the actual cut-off yield can vary based on the amount of applications submitted, like we saw in the recent 6-month T-bill auction. To avoid getting a lower than expected yield, we can consider putting in a competitive bid. 

The auction will be held on 19th October (Thur), which means that we would need to put in our cash applications by 9pm on 18^th October (Wed).

The closing date for T-bill applications using CPF-OA differs across the three local banks.

• Applications for T-bills online using CPF OA via DBS close at 9pm on 18th October (Wed). Read our step-by-step guide to applying via DBS. 
• Application for T-bills online using CPF OA via OCBC close at 9pm on 18th October (Wed). Read our step-by-step guide to applying via OCBC
• Applications for T-bills online using CPF OA via UOB close at 9pm on 17th October (Tue). Read our step-by-step guide to applying via UOB. 

Check out our comprehensive guide to T-bills to find out more about T-bills and how to apply. 

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