Cash is King (yeah right...no seriously)

Recently a friend helped me frame my thoughts around cash and the issues that with inflation and the very poor interest rates that banks pay, our cash generates little when not used/invested. This view drove me aggressively to look at using my cash actively to invest in liquid assets. My investment choice was stocks (and still is). 

But it's been a rough two months (Dec15-Feb16) with markets dropping close to 20%. Now to me, i don't view my net worth as a number but more as how much i have achieved against my long term goals - university and school fees for my daughters, financial security for the family and the like. 

So here i am sitting on a sizeable investment portfolio with very little cash as i viewed my liquid assets as available for sale and then the market dropped and i realised that my goals that i track monthly dropped significantly. I did not feel secure, calm and assured that i could take advantage of this opportunity (low prices = opportunity). 

This made me realise as much as stocks are a great long term investment tool, there is a place for cash as well. The security it gives you, the flexibility it gives you to maintain calm and continue investing and most importantly, the ability to take advantage of opportunities that come, especially the once-in-a-decade like opportunities like we saw in 1998 and 2008. 

So i have revised my view - there is a place for CASH. 

But now in Singapore, how do you maximise your CASH holdings?

Now thanks to that same friend who compiled some data, i hope to put in a plan to do this. My goal is simple, to feel secure, to maintain calm to continue investing and to take advantage of investment opportunities when they come. The key words - secure, calm and opportunity. 

So first, what are the best cash accounts out there. 

We evaluated 3 accounts, the DBS multiplier account, the UOB One Account and the OCBC 360 account. 

To make a like and like comparison, we looked at what 50k in these accounts could generate in interest and then only looked at what the conditions we would need. (We also excluded any conditions that pays you additional interest only if you invest in an insurance/investment product - that's not cash). 

So for 50k, the DBS Multiplier pays 2.08%, the UOB One Account pays 2.43% and OCBC pays 2.20%. As you can see, all pretty close. Now what are the conditions? All three require your salary to be credited to this account. All 3 require a bank credit card and regular use of the cards monthly. DBS even allows your home mortgage payments to be applied to this balance as well and OCBC/UOB require 3 GIRO bills to be paid. 

For me, it was an easy choice, my salary is currently credited to DBS. Then i got a DBS Mortgage. So i opened the DBS Multiplier Account a few months ago and now to add to the monthly balance (that they require) i have applied for a DBS Credit Card (the Altitude card) as i just want mileage points. 

So my first advice to those of you who are keen on maintaining cash, choose the right account for you and maximise this balance. 

Now the next steps, creating a FD ladder. To me, to feel secure, calm and to be able to take opportunities when they come, cash needs to be available. As such, my goal is to place FDs maturing each month for at least 12 months. 

Now most of the banks pay a very low 0.05 for a 1mth FD up to 0.25 for a 1yr FD save for the Malaysian banks like Maybank/RHB and the Indian banks like  SBI and ICICI that pay up to 0.75%.

So here, i think the FD rates are quite meaningless but the need to set up a proper FD ladder framework is key. 

So my choice the DBS Multiplier account and a FD ladder at a convenient bank. 

So assuming a 50k in the DBS multiplier account and an average 10k placed over 12 months earning an average of 0.25%, the interest earned will be 87 a month for the DBS account and 25 for the FD amount. A GRAND total of just about 112. 

Now as the saying goes - BETTER than nothing. 

But the goal is clear, to keep secure, calm and to be ready for opportunity.