How to inflation proof your savings?
19 December 2022 | 2-mins read
We all know the importance of savings. A good guide on how much to save each month would be to follow the 50-30-201 rule where you allocate 20%1 of your salary to savings or investments. Rather than just stashing all your savings in a bank account, making your money work harder for you can compound your earnings and fight the effects of inflation.
What exactly is inflation?
To put it into simple terms, inflation represents the decline in real purchasing power. The S$1 that you used to buy a cup of Kopi in year 2000 can't buy you that same cup in 2022 and beyond. Instead, you may need to pay S$1.50 to S$2 for it today. The amount may seem small, but what if you think about the same effect applied to more expensive items like your your HDB flat or medical bill in Singapore?
Image credit: https://tradingeconomics.com/singapore/inflation-cpi
As seen in the chart above, the inflation rate has been increasing over the years in Singapore. As of August 2022, inflation is at 7.5%2, up from 7.0%2 in the prior month. This was the fastest rise in consumer prices since June 2008, with food prices rising the most in nearly 14 years2.
With inflation progressively rising, you are losing purchasing power over time by simply leaving your money in a savings account with low interest rates. Thankfully, there are many ways in which you can protect yourself against inflation in Singapore.
3 ways to protect your savings from inflation
1. Look for a savings account with high interest rates
A regular bank savings account has its merits, one of which is being accessible to your money whenever you need it. To counter inflation, banks have been coming up with savings accounts with competitive interest rates. Refer to the list to find out the 7 best savings accounts in Singapore in the year 2022.
2. Work your savings harder
Apart from regualr bank savings accounts, you can consider alternatives such as insurance savings plans with protection coverage. Planning for your future in an uncertain economy requires an insurance plan that builds your funds while protecting your loved ones.
For example, Manulife GrowSecure guarantees your capital at policy maturity3 and provides coverage4 against death and terminal illness.
3. Start investing
Investing is an effective way to have your money work for you and potentially build wealth. There are many types of investment products available, so it is important to consider the following questions5:
- What are the product’s benefits, risks, limitations and transaction costs?
- What is the maximum you can lose in the worst case, and how might this happen?
- Will this product complement, supplement or replace your existing investments?
- Will you become over-exposed to a particular risk if your portfolio is not sufficiently diversified?
Those who are looking for both investment and insurance components can consider Investment-Linked Policies (ILPs). Find out what are Investment-Linked Policies and if they are suitable for you.
Inflation is a fact of life - to do nothing is to look at your purchasing power being taken away from you over the years. Safeguard your future today and consider some of the alternative ways to help you reach your financial goal. Speak to us today to find out how you can inflation proof your savings.
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Footnotes:
1. https://www.moneysense.gov.sg/articles/2018/10/how-much-of-your-salary-should-you-save
2. https://tradingeconomics.com/singapore/inflation-cpi
3. Not applicable for policies which have been altered.
4. Please refer to the Product Summary and Policy Contract for more details.
5. https://www.moneysense.gov.sg/articles/2018/10/an-introduction-to-types-of-investments
Important notes
Manulife GrowSecure and its supplementary benefits are underwritten by Manulife (Singapore) Pte. Ltd. (Reg. No. 198002116D). This advertisement has not been reviewed by the Monetary Authority of Singapore. Buying a life insurance policy is a long-term commitment. There may be high costs involved if you terminate the policy early, and your policy's surrender value (if any) may be zero or less than the total premiums paid. This article is for your information only and does not consider your specific investment objectives, financial situation or needs. It is not a contract of insurance and is not intended as an offer or recommendation to purchase the plan. You can find the full terms and conditions, details, and exclusions for the mentioned insurance product(s) in the policy contract.
This policy is protected under the Policy Owners’ Protection Scheme which is administered by the Singapore Deposit Insurance Corporation (SDIC). Coverage for your policy is automatic and no further action is required from you. For more information on the types of benefits that are covered under the scheme as well as the limits of coverage, where applicable, please contact us or visit the LIA or SDIC websites (www.lia.org.sg or www.sdic.org.sg).
We recommend that you seek advice from a Manulife Financial Consultant or our Appointed Distributors, or visit any DBS/POSB Branch before making a commitment to purchase a policy.
Information is correct as at 19 December 2022.
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