Category : Blogs

Sub Category : Miscellaneous

In the last 12 months or so, fixed deposits have provided greater returns, thanks to a rise in interest rates. Hence, it is natural to feel compelled to put your savings into guaranteed bank deposits. While it is best to have adequate savings and liquid cash, many people are choosing fixed deposits for the safety they afford, as investing in property and equity may prove risky.

However, could investing all your savings in fixed deposits be a smart decision? Let us explore. 

Cash does not combat inflation

Any dependable financial adviser for British citizens in Singapore will tell you that by putting your cash in a fixed deposit, you only obtain the guaranteed amount, nothing less, nothing more. While this seems advantageous, it is far from it. In fact, when inflation is high like it has been in the past few years, your money's spending power reduces. Inflation has and will continue to exist and so far bank deposits have been unable to combat inflation the way equities have. 

‘Safe’ might not be safe

Banks defaulting is no longer out of the realm of possibilities, especially after witnessing SVB, Signature Bank, and Credit Suisse’s downfall. This hints at the possibility that ‘safe’ might not be safe and ‘guaranteed return’ isn’t actually guaranteed.  

Banks fall under the Deposit Protection Scheme, although their limits are not substantially high. This means that if your bank defaults and you have more than a specific limit in a fixed deposit or even just your bank account, you will only receive an amount up to that limit.   

Fortunately, avoiding this is possible by saving and investing your cash in different banking institutions. In addition, you can diversify risk by investing in portfolios. Doing so may give you access to high returns and combat inflation, especially in the long run. 

This recent market volatility has highlighted the importance of diversifying and planning for the long-term to limit risks. Fixed deposits are a smart decision for the short-term, however, by investing in them you are exposing yourself to reinvestment risk. 

If your savings, investing, and financial planning are all limited to one bank or one bank account, you are not diversifying, losing potentially higher returns, and are taking a massive risk because your bank may default. Cash is necessary for daily life, but not so much in successful long-term planning. 

 Conclusion

Reliable and completely factual tax advice for British expats in Singapore is quite hard to come by. Conducting preliminary online research is a great idea, however, once you have gathered basic information, we recommend consulting an experienced financial adviser. Doing so will save you a lot of time, money, and effort while maximizing returns.