Low Interest Rates Are Here to Stay—And That’s Good News for Your Wallet
In a world still battling one of the biggest recessions ever, the Fed’s low‑rate strategy shows no sign of easing anytime soon. Whether you’re a Singaporean or just living in the USA, there’s plenty you can do to make the most of rates that’re hovering near zero.
Singapore’s Key Rate Benchmarks
- Repo Rate – The official baseline. It’s the interest the Monetary Authority of Singapore (MAS) charges banks for overnight loans.
- Marginal Lending Rate (MLR) – Banks use this to set their own rates when they lend to households. It’s the MIC (minimum interest rate) that banks can’t go below.
- Borrowing Cost Barometer – A true reflection of what people actually pay on loans, calculated from real‑world data.
Understanding the Highs, the Lows and the Mystery Between
Think of rates as a giant seesaw. One side is “economic stimulus” (the Fed or MAS wants to keep borrowing cheap). The other is “inflation control” (raise rates to keep prices stable). When the economy is sick, the seesaw tilts far left—rates stay low. When the economy’s rocking forward, it swings right to halt overheating.
Why and How Interest Rates Matter to YOU
- Home Loans – A lower rate means monthly payments drop, freeing up cash for a beach vacation, a new bike, or that extra‑size pizza.
- Business Capital – Cheap borrowing fuels expansion. If you own a café, a low rate might fund a pizza‑in‑a‑box delivery drone.
- Savings – Savings accounts with low rates pay you less cash, so consider diversifying to bonds or even a high‑yield investment.
Pro Tips for Maximising Low Rates
- Refinance Early – Chop your mortgage rate, and you could save thousands over the life of the loan.
- Shop the Rates Map – Check multiple banks or building societies. Even a 0.05% difference can make a signing impact.
- Blend Fixed & Variable Rates – A fixed part offers stability; a variable part can snag even lower rates when the market dips.
- Invest Smartly – Honestly, if rates are this low chronically, look beyond traditional savings. Think ETFs, low‑debt corporate bonds, or an education savings plan.
- Keep an Eye on the Fed’s Handshake Signals – The Federal Reserve’s Beige Book and Statement meetings keep you in the loop. Their words often spell the next shift.
Takeaway: Embrace the Low
Longevity of low rates means you can lock in cheap borrowing for the long haul. Don’t let the irony of “low rates forever” scare you—use it to your advantage. Start planning, refinancing, and investing wisely today: Your future self will thank you with a bigger chuckle and a lighter wallet.
The underlying factors that affect interest rates
What’s Up With Interest Rates?
Ever wonder why the bank’s “interest” can feel like a roller‑coaster? It’s all thanks to the big‑wigs at central banks flipping those levers as the economy loads up or dips down.
High‑Rate Days: Borrowing Gets a Frown on It
- Loans hit the pricey wall: Credit costs more, so most folks and firms keep their wallets tighter.
- Save, save, save! When borrowing feels like a chore, banks lift those savings rates, making your piggy bank a bit happier.
- Impact: Think of it like a duck getting a bit sluggish on the pond – the market moves slower, and people’re less likely to take on debt.
Low‑Rate Days: The Economy’s Power‑Up Button
- Loans become a bargain: Cheap interest means more folks grab mortgages, buy homes, and businesses invest.
- Cash flows faster: Money circulates like a blockbuster movie—everyone wants a front‑row seat.
- Result: A surge in economic activity that can pop up small businesses and corporate growth.
Covid‑19: The Stay‑Home Surge That Dip‑Score
When the world locked down and free‑spending got to the curb, consumer dollars hung around the house. The bank‑world, not wanting the economy to drift into free‑fall, decided to bow to the chaos.
The Global Low‑Rate Move
- Monetary easing — the new cool: Central banks nudged rates downwards, saying “Hey, keep that cash flowing!”
- Why it matters: Low rates are like a friend who always says “Let’s bring the coffee in.” It pushes the market to keep humming.
Just a quick FYI: In March 2020 the Fed, kinda like a superhero, slashed rates to nearly zero to keep the economy from taking the plunge during the pandemic.
Singapore’s key interest rate benchmarks
Singapore’s Interest Rate Scene: A Quick Guide
What’s the Buzz About?
In Singapore, a few interest‑rate benchmarks keep the financial world spinning. Whether you’re eyeing a home loan or just curious about the market, here’s what’s hot:
-
SIBOR – Singapore Interbank Offered Rate
Think of it as the middle ground where banks lend money to each other. Many home loans dance to its rhythm, except the ones that lock in a fixed rate. It’s the median, so almost everyone lives in its average. -
SOR – Singapore Dollar Swap Offer Rate
Once the go‑to benchmark, SOR ties the Singapore dollar to the U.S. dollar, borrowing its pace from the old USD London Libor. It’s the rate that many businesses and investors look to. But hold on—Libor is gone, so SOR will be swapped out by the end of 2021. -
SORA – Singapore Overnight Average Rate
This is the fresh kid on the block. SORA averages the rate of unsecured overnight interbank SGD transactions. It’s set to become the new standard for the cash and derivatives market. OCBC just slipped the first green light by issuing a 150‑million‑dollar loan pegged to SORA, making it Singapore’s first SORA‑based loan.
Yesterday’s Numbers (June 10 2020)
Let’s peek at the rates that were in play on that day:
- SIBOR: 0.93%
- SOR: 0.94%
These tick‑tock numbers help banks decide how much to charge you, and they shape the whole financial playground.
Why It Matters to You
Whether you’re a first‑time buyer, a seasoned investor, or just a curious netizen, the benchmarks dictate the cost of borrowing and the rhythm of your savings. Keeping an eye on them is like following the beat of a financial dance—miss a step, and you’re either trailing behind or paying extra.
Understanding the highs and lows of interest rates
How Low Can Rates Get? How High Can They Go?
When you’re in the market for a loan, the interest rate is the star of the show. It can make a big difference in how much you finally pay back. Let’s break it down so you don’t get lost in the numbers.
1⃣ Low‑Rate Loans (1 % – 3 %)
- Mortgage – The dream of owning your own home gets a sweet deal if the rate stays under 3 %.
- Education Loans – Colleges won’t bite if the yearly charge is 1–3 %.
- Car Loans – Dragging a car into your driveway is easier when the interest stays low.
These loans are the happy‑hour of the borrowing world. They’re called good debt because you’re paying very little in interest and you’re investing in something useful.
2⃣ Mid‑Range Loans (4 % – 9 %)
- Personal Loans – Not the cheapest, but handy for when life throws a curveball. Perfect for covering an emergency or replacing a broken laptop.
- Debt Consolidation Plans – If you’ve got several bills at 8–12 %, bundling them together at a 6 % rate can save you money.
Our current focus: Standard Chartered’s CashOne Personal Loan stripes a flat 3.48 % p.a. (EIR 7.99 %). That’s excellently low! Add a chance to win $10,000 on SingSaver and you’ve got yourself a real deal.
3⃣ High‑Interest Loans (10 % & Up)
- Credit Cards – These are like the roller‑coaster of borrowing: exciting, but the fees can jump you in the jaw.
Missing a payment can sprinkle an extra late‑payment fee on top of the 25–27 % p.a. rate. It’s award for your misstep – and for the bank, a profit. If you see a credit card, you’re dealing with a high‑risk, high‑cost beast.
Bottom Line
Good debt is all about balance and management. Low rates give you the leverage; high rates might just pinch your wallet. Watch the numbers, stay honest about what you can afford, and keep reading – the world of finance ain’t a mystery after all!
Why interest rates matter (and they do matter to you, eventually)
a) You could very well score big time savings on big ticket loans
Why a Lower Interest Rate Means a Bigger Pocket
When you borrow from a bank, you’re basically buying a time‑based fee on the money you’re taking. The cheaper that fee (the lower the interest rate), the less you’re paying in the long run.
Crunching the Numbers with the CPF Monthly Instalment Calculator
Let’s pretend you’re looking at two identical home loans. Below are the figures that the calculator spits out:
- Loan amount: $400,000
- Repayment period: 20 years (240 months)
Loan A – 2.6% p.a.
- Estimated monthly instalment: $2,139
- Total repayment: $513,360
- Interest paid: $113,360
Loan B – 1.8% p.a.
- Estimated monthly instalment: $1,986
- Total repayment: $476,640
- Interest paid: $76,640
The Bottom Line
Choosing the cheaper loan slashes your interest by $36,720. That’s a sizeable chunk—enough to put down on a brand‑new home or simply keep in your savings drawer.
It’s Not Just the Advertised Rate
Many lenders brag about their advertised rate, but the real track record of how much you pay is the Effective Interest Rate (EIR). The EIR captures everything—transaction fees, admin charges, and any other hidden costs that bump up the final amount.
Why EIR Is Warmer Than the Sticker Price
Think of the advertised rate as the price tag on a car, while the EIR is the total cost of ownership over the life of the loan. Because of the extra costs you pay on the side, the EIR usually ends up being a bit higher.
When shopping around a loan, check both the advertised rate and the EIR to make sure you’re not paying more than you think.
b) It helps decide which savings or deposit account to maximise savings
Why Can’t You Just Lock in 2%?
The rates we chuck onto loyalty accounts shift with the health of the economy—just like a weather‑dependent pot of gold.
Banks tweak rates to juggle deposits, credit demand, and regulatory playbooks. They’re not always playing long‑term constants.
Recent Rate Hikes (Actually, lowering rate moves)
Standard Chartered
CIMB
Bottom Line: Fewer Dollars Earned
| Bank | Account Type | Original Rate | New Rate | Effect on Interest |
|---|---|---|---|---|
| Standard Chartered | JumpStart | 2% per annum | 1% per annum | Half the earlier earnings. |
| CIMB | FastSaver | 1% per annum | 0.5% per annum | The same savings will now bring just half the interest you’d have gotten. |
Calculate it yourself:
Same for $50,000 at 1% vs 0.5%: $500 down to $250.
Takeaway
Even though “high yield” sounds like a forever‑stuck two‑percent universe, reality says: keep an eye on your bank’s headline, because your interest can swing downhill just as fast as it could climb.
What you should do once you see low interest rates
a) Refinance your home loan
Why Pay More When You Can Pay Less?
It’s a simple equation: Less interest = More savings. With floating home loan rates hitting a low point, now’s the perfect time to refinance.
Current Landscape
- Three‑month Sibor is hovering around 0.56% in June 2020 – a stark drop from the 2% seen in May 2019.
- Low rates mean you can swap out a pricey loan for one that’s cheaper.
What Refinancing Means
Think of it as a loan makeover. You take out a new loan to replace your existing one, ideally at a lower interest rate. The goal? Lower payments, higher peace‑of‑mind.
Strategies to Save
- Keep the same bank – they might offer refreshed terms you’re happy with.
- Shop around – cross‑check offers from other banks for the best rates.
Example: DBS Offer
DBS is rolling out a five‑year fixed‑rate package at just 1.5% per annum.
- First five years: 1.5% p.a.
- After that: FHR24 + 0.90% p.a.
Contrast that with a standard HDB loan at 2.6% per annum – a clear savings win.
Bottom line: if you’re juggling mortgage payments, a refinance could cut your annual interest costs noticeably. Don’t wait. Ask your bank about the latest offers and see if you can make your home loan work harder for you.
b) Invest your savings instead of keeping it in a bank account
Why Cash Isn’t Always the Crown Jewel These Days
All that glitters isn’t gold—so especially when banks cut interest rates, even a decent savings account can feel like a bottom‑shelf bag of pennies. If you’re earning between 0.5% and 1% (or anything under 2%) in a savings account, inflation will suck out that little bit of interest before you even notice.
High‑Yield Savings: A Maze of Prerequisites
Many so‑called “high‑yield” accounts actually demand you take a few extra steps. Think about:
- Crediting your salary to a particular account
- Shopping on a credit card linked to the account
- Taking a loan and buying insurance—yes, really
It’s like a game of who can keep all the cards on a table while you’re just trying to earn some interest.
Better Places for Your Money?
Why not put your cash where it can actually grow? Consider:
- Singlife Savings Account — earns up to 2.5% per year
- Investments in stocks, bonds, ETFs, or unit trusts — usually a longer haul, but you stand to ride the waves of the market and let compounding do its thing
For instance, if you toss money into the S&P 500, it’s not about guessing the next market swing but about getting about 9% returns over the long run. And if you’re a CPF fan, topping up your CPF SA can secure a guaranteed 4% per year.
Leverage? The High‑Risk Fine Print
Some folks try to use borrowed money to boost returns. It’s like trying to speed up a race by borrowing a car. Sure, you might hit the finish line quicker—but if you miss, the car gets stuck and you’re left stranded with heavy debts.
Take a look at the pros vs. cons before borrowing to invest.
Bottom Line: A Tough Economy, a Golden Opportunity
Low interest rates spell trouble for the broader economy, but they also present a sweet spot for:
- People juggling expensive home loans
- Those who’re ready, willing, and able to put their money into real investments
It’s a perfect storm of risk and reward—so pick your sail wisely.
— This piece was originally featured on SingSaver.com.sg.
