How to earn a higher return on your SRS investments

What happened?

After our previous article on why ETFs are gaining popularity amongst SRS investors, we received several questions about the various investment options available.

Hence, we decided to take a deeper look at the various SRS investing options to examine how we can generate a potentially higher return by investing our SRS funds. 

As a recap, the Supplementary Retirement Scheme (SRS) is a tool designed to help you add to your retirement savings. 

This is done voluntarily and on top of your CPF Ordinary Account (OA) and CPF Special Account (SA) contributions. 

What are the advantages of the SRS?

One of the key benefits for using SRS is the tax relief when you top up to SRS. For Singaporeans and PRs, you can claim up to $15,300 in income tax relief for every dollar you top up into your SRS. 

Since you are going to save the money for retirement anyway, why not take advantage of the tax savings while you are at it? 

We share how much tax savings you can enjoy based on your income bracket and all the details you need to know about SRS here.

Now before you start thinking that SRS is going to automatically grow your money for you, it isn’t. SRS isn’t like your CPF OA. 

It pays just an interest of 0.05% p.a. when you park your money in it. Therefore, you can consider various options to earn a potentially higher return after you top up your SRS. 

What are the SRS investment options available?

There are various investment options available for you to invest the money in your SRS account. 

Shares, REITs and ETFs are the most popular option amongst SRS investors, representing 26% of all investments as of December 2022.

This is followed by Insurance, which represents 25% of all investments as of December 2022.

Close to 21% of all SRS funds are kept as cash, earning a return of just 0.05% p.a.

#1 – Singapore Dollar Fixed Deposits 

The safest option you have is to safekeep your money in fixed deposits. These are typically done directly with the bank that you opened your SRS account. For instance, if you open your SRS with DBS, then you can park it in fixed deposit offered by DBS.

You can find the best fixed deposit rates offered by the banks here. As of August 2023, the best fixed deposit rate offered by the Singapore banks is 3.20% p.a. for a 12-month fixed deposit, with a maximum deposit amount of S$19,999. 

#2 – T-bills/Singapore Government Securities 

Singapore Government Securities (SGS) and Treasury Bills (T-bills) are bonds issued and fully backed by the Singapore Government. 

Singapore T-bills have a short maturity period of 6 or 12 months, compared to SGS bonds which have a maturity of 2 to 30 years.

In return for lending your money to the Government, you an interest payment as a bondholder. The yield you get in return depends on how long the bond matures. 

The 6-month T-bill offered a yield of 3.85% in the auction on 20th July, while the 1-year T-bill offered a yield of 3.74% in the auction on 27th July.

#3 - Singapore Saving Bonds (SSB)

Singapore Savings Bonds (SSB) provide you with a simple and low-cost way to generate safe returns.  

The biggest difference between SSB and SGS is that SSB offers more flexibility for withdrawal. You don’t get penalized for wanting to withdraw early. 

At the same time, if you hold an SSB for the long run, you may get a step-up interest rate every year. In other words, the longer your hold on to the Singapore Savings Bonds, the higher average interest rate you will receive.

The August issuance of the SSB offered a 1-year return of 2.97%, and average 10-year return of 2.99%.

#4 – Foreign Currency Fixed Deposits 

If you have a slightly higher risk appetite, you can consider fixed deposits in foreign currency (e.g. USD). 

The interest rate on foreign currency fixed deposits is currently higher than SGD fixed deposits. 

As of June 2023, the best 6-month US Dollar fixed deposit rate we found was 5.08% p.a. offered by UOB, for a minimum deposit of US$50,000. You can find all the best foreign currency fixed deposit rates here.

However, fixed deposits in foreign currency are considered higher risk as they are subjected to foreign exchange rate fluctuation. For example, you may incur losses if you put your money into USD fixed deposits, and should the USD weaken against the Singapore dollar. 

#5 - Unit Trusts

If you would like to your SRS funds to be managed by a professional, you can consider putting it into a unit trust. 

Each unit trust is a professional managed fund with its own mandate on its investment universe. For example, you can find a unit trust that invests only in technology companies. Another unit trust might have a mandate of investing in Southeast Asia. There are also unit trusts that lets you invest in bonds-only or dividend play companies. 

Each SRS provider may offer its own selection of unit trusts to customers. Hence, depending on which SRS provider you are using, you would have a different set of unit trusts to choose from.

#6 - Robo Advisors

Robo advisors are investment applications that use automated algorithms to provide you with a set of personalised investment solutions. This is often customised based on your risk profile and financial goals.

In most robo advisors, you’d be asked to fill up a series of questions to understand your level of risk tolerance in order to achieve your financial goals.

Based on your risk and financial goals, the algorithm will generate and recommend an investment portfolio.

For example, Endowus, Moneyowl, and StashAway allow you to invest your SRS money with them. 

#7 – Stocks and REITs

At the bottom of the list, you have the do-it-yourself option of picking your own stock and REIT investments amongst publicly listed companies that are listed on Singapore Exchange.

Note that you are not limited to the brokerage of the bank that you have your SRS account set up on. 

For example, if your SRS account is on DBS, you can still use other brokerages (e.g. OCBC Securities, UOB Kay Hian, iFast) to invest your SRS funds.

#8 – ETFs

Earlier, we shared that interest in ETF investing is gaining popularity amongst SRS investors. According to SGX, the combined asset size of ETF holdings directly held by SRS investors has doubled between December 2019 and December 2021.

ETFs provide instant diversification as they typically hold a basket of securities representing a particular index, sector, or asset class.

Also, ETFs are typically more cost effectively compared to actively managed unit trusts.

Find out more about why ETFs are gaining popularity amongst SRS investors here. 

What would Beansprout do?

With the numerous investment options that are available to SRS investors, it may be difficult to choose the best product for our portfolio.

We would consider our investment objectives, risk appetite and time horizon when deciding how to invest using our SRS funds. 

For example, fixed deposits may be able to offer a decent interest rate now in a safe way. However, we are only able to lock-in this return for up to 12 months. This may then present us with re-investment risks should interest rates fall upon the end of the fixed deposit term. 

For those who have a higher risk appetite, you can also consider other products such as ETFs but they come with their own advantages and disadvantages. 

Regardless of what you invest in with your SRS funds, the key thing is to get started and not let it earn just the 0.05% interest.