Optimising your money in a low interest-rate environment

Optimising your money in a low interest-rate environment

If you’ve got a minute,

Here are some ways you can make your money work hard in a low-interest rate environment:

  • Take advantage of falling interest rates by refinancing or repricing your mortgage, and consolidating all outstanding unsecured debts.
  • Explore higher-yielding instruments, and balance your portfolio with low-risk investments and higher-yielding asset classes.
  • Invest in high-quality, short term fixed-income instruments with Money Market Funds.
  • Invest in equities, which offer potentially higher returns but come with higher risks.

The movement of interest rates has a ripple effect on the economy in many ways. For businesses, lower interest rates present an opportunity for owners to expand their operations with cheaper loan rates. For consumers, one of the most obvious impact would be the paltry interest rates you earn from your deposit accounts.

You might have seen the adjustment of interest rates to your bank accounts in April 2020. This did not come as a surprise, since global interest rates have been declining. While many savers bemoan the potential of earning higher interest in their savings account, there are other ways for you to make your money work hard in a low interest rate environment.

Here are five ways:

Refinance or reprice your mortgage

As a homeowner, your mortgage repayments could take up a big part of your monthly expenses. With the falling interest rates, a good way to help you save on the interest payments would be refinancing your home loan.

This means replacing your current home loan with a new one from a different bank, allowing you to obtain a lower interest rate. You can also ask your current bank for a repricing, which is the same as refinancing but with the same bank.

You should check if your current home loan has passed the lock-in period so that you will not incur a penalty. Refinancing or repricing usually involves some costs, so you would want to ensure that the difference in the interest rate is significant enough for you to justify the cost and enjoy some savings.

In a declining interest rate environment, it might be a good idea to choose variable rates instead of a fixed rate to take advantage of the rates heading south.

Consolidate outstanding unsecured debts

You may find that interest on loans are lower to encourage more borrowing during a period of low interest rates. If you have outstanding loans, it could make sense to consolidate them to take advantage of the lower interest rates.

For example, if you currently have outstanding credit card balances as well as a personal loan with different banks that you are working to pay off, you might benefit from a debt management scheme such as the Debt Consolidation Plan (DCP) offered by DBS Bank that charges effective interest rates from as low as 6.56% per annum.

Do however, look out for fees involved in a DCP. They could include processing fees, late fees, as well as an early termination charge.

Look to higher yielding instruments

During this period, you may find that the interest returns on low-risk investments to be pretty underwhelming. Fixed deposit rates, as well as returns of government securities (e.g. Singapore Savings Bonds) are expected to come in lower.

The chart below showcases the interest rate returns for Singapore Savings Bond in the last few years.

How to optimise your money in a low-interest rate environment

While looking for a “safe” place to park your savings, you can also explore higher-tier savings account, such as the Multiplier Account. By carrying out a few banking transactions with a single account, you get to earn up to 3.8% interest per annum. Furthermore, you can easily set up the transaction automatically and continue earning the higher interest every month.

Having said that, while these low-risk investments could still have a place in your overall portfolio, you might want to adjust their overall weight accordingly, and free up cash to invest in higher-yielding asset classes.

Money market funds

For conservative investors looking for yield, a money market fund could be an option. A money market fund is a type of fund that invests in high-quality, short term fixed-income instruments. These may include government bonds, corporate bonds and commercial bills.

What the money market fund does is to invest its money over different types of money instruments and institutions, thus outperforming fixed deposit rates. Although not quite as “safe” as cash, money market funds are still considered extremely low-risk.

Overall, these funds can give you close to the returns of a fixed deposit rate without having to lock down your money.


Lower interest rates are generally viewed as catalysts for growth. Cheaper loan rates encourage individuals and corporates to spend. That’s also a reason why when the economy is not doing well, central banks typically move to cut rates so that corporates can get access to cheaper loans.

Businesses will then be able to fund expansions and acquisitions, thus increasing their future earnings potential, which, in turn, leads to higher stock prices.

When individuals get access to cheaper funds, they may also have more resources and positive cash flows to invest in the stock market. Therefore, the general trend is that in a low rate environment, stock markets would trend higher.

The caveat is that while equities offer potentially higher returns, they also come with higher risks. For example, stocks will likely generate higher long-term returns compared to bonds or money market funds but will also be more volatile.

The key to investing, in either a low or high interest rate environment, is to have a diversified portfolio comprising a balance between risk and reward.

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Disclaimers and Important Notice
This article is meant for information only and should not be relied upon as financial advice. Before making any decision to buy, sell or hold any investment or insurance product, you should seek advice from a financial adviser regarding its suitability.

All investments come with risks and you can lose money on your investment. Invest only if you understand and can monitor your investment. Diversify your investments and avoid investing a large portion of your money in a single product issuer.

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