Tim Talks Money AMA (Ask Me Anything) #2

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Whether it's about navigating the latest market events, unpacking a complex financial concept, understanding the various asset classes or simply sharing practical money tips you can use day-to-day, this is your chance to ask me anything (AMA). 

If you have a question that you want to see answered in a future post, submit here.

Question 1: What do you think about REITs? 

The acronym “REITs” stand for real estate investment trusts. REITs are a fantastic way to gain exposure to real estate, especially if you're looking for diversification beyond traditional stocks. 

In Singapore, and globally, they've had an impressive run since 2009, when interest rates have been basically close to 0%. 

However, with rising interest rates, REITs have faced significant challenges, like higher cost of debt. That has led to a decline in interest in REITs as well as poor share price performance. 

Now the reverse is happening, though, in that interest rates are starting to fall. Of course, we saw another interest rate cut this week. That’s certainly raised their profile among investors and as interest rates continue to be cut, they could get a boost.

But remember, a lot of these REITs will be rolling over debt at higher interest rates than the pre-pandemic/Covid period so lower rates now might not immediately translate into lower debt costs for these REITs.

Nevertheless, even though REITs have recently fallen, that doesn’t mean it’s “game over” for the asset class. There's still substantial potential in the REIT market over the long term, as there’s always going to be demand for income-producing real estate.

My advice would be to stick to the largest REITs in Singapore that have strong sponsors and robust track records in paying out dividends. Think of the likes of Mapletree, Frasers, and Parkway Life.

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Question 2: What do you think is the best savings account in Singapore?

In terms of savings accounts, it's a bit of a challenge right now. Banks in Singapore, or anywhere, don't really need your cash so interest rates they offer are pretty low. Besides that, interest rates in most places worldwide are falling. 

However, UOB One and OCBC360 are probably the best options, offering relatively better rates unless you’re willing to really go into the weeds and explore banking with the Chinese banks for an extra 30 or 40 basis points (bps) (0.3% or 0.4%) of interest. 

Both the UOB and OCBC accounts have specific conditions, like salary crediting, minimum credit card spending or purchasing insurance/investments, to unlock the highest interest rates. The blended effective annual rate (AER) can go up to the low 4% range although this is now coming down substantially as yields on “safe assets” fall.

On the other hand, DBS offers pretty poor rates, primarily because they don’t need more deposits; they’re already flush with cash (just look at the record profits they recorded earlier this week). It’s a reflection of the bank’s current cash needs rather than a competitive rate offering. 

If you choose UOB or OCBC, just be sure to meet their conditions to maximise your interest earnings. As interest rates from the Fed continue to decline, there should be one more rate cut before the year is done, expect these banks to adjust their rates accordingly.

Got a question? Submit it here and I’ll try to answer it in a future post.