Savings account interest rate is dropping, now what?

First OCBC, now UOB. For those who are following the market and economic trends in 2025, this is not a surprise. Rate cuts have been on the table since at least 2 years ago – in fact, it has been delayed multiple times.

But for most other people, this is a headliner – with a refrain: now what? The thing is this; interest rate cuts are good news for net-borrowers (e.g. people with high mortgage) and arguably for investors (especially those who use leverage). However, for net-savers, who make up a good portion of Singaporeans, it is the reverse. And if you are reading this, you are probably in the latter group.

For the past couple of years, we have enjoyed high savings interest rate. But now, where do we park our cash? Many articles online discuss where is the highest fixed deposit rate, what is the latest T-bill rate, which bank has what promo, which latest shiny product offers bonuses, etc. Instead of focusing on moving hot money (chasing the additional 0.1%), we ought to understand our needs and have a clear set of expectations; lest we end up in a situation like a certain product with a confectionary-related name...

Disclaimer: This is not financial advice. Each individual's circumstances is different. Please consult a professional financial advisor if required.

What is your savings for?

Here is how I would start thinking about it. When you say "savings", what exactly do you mean by that?

To me, "savings" refers to cash accounts that I can withdraw from (or, with digital finance, spend) right now, for any amount (up to the account balance of course) – not in x business days, not for first $x only, not excluding some merchants. The key: it is highly liquid.

What is the use of such highly liquid fund?

1. Day-to-day expenses, or monthly expenses. It does not strictly have to be daily withdrawal or spend; it can be to pay monthly bills, etc. Basically it is a "working capital" – a fund that supports your typical living expenses. You get the idea.
2. So-called "emergency fund". This supports out-of-ordinary and unexpected expenses. Could be as simple as replacing your broken spectacles or mobile phone, or as critical as paying for medical bills. Typically, the suggestion is to have 6-12 months of expenses in this fund, depending on your circumstances.

Wait a minute...

Now you might think: What about "savings" to buy a certain big-ticket item or funding a holiday or retirement? What about those "savings" that generate returns or income?

The way I see it,

• For funds to make future purchases, it is more like you are pre-paying for these expenses. You are setting aside some cash in expectation of future expenses; it is no longer liquid (CPF is an example of such funds). Of course, if it is in cash, you still have the option to use it for other purposes if a more urgent need arises, and foregoing or deferring these planned expenses.
• For funds that generate returns or income, you are thinking about "investment", not just "savings". This is outside the scope of this article.

I will focus on "cash savings" here and leave further discussion on investment in future articles.

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How do I think about cash savings?

Savings doesn't buy you extra goods and services. It doesn't generate returns or income that you can spend with now or in the future – investment does that. Instead, it buys you time, it buys you options, it buys you flexibility, it buys you peace.

Ever wondered why the typical suggestion of how much emergency funds to build up is in terms of “months of expenses” instead of a particular dollar sum?

Say you are sick of your job, your boss, your employer, and you have 3 months of expenses saved in your emergency fund; you can quit today and live as usual for the next 3 months while you find your next job.

With 6 months available? You can pass on job offers that you don’t feel really aligned to, and take more time to land a more suitable role.

Have 12 months instead? Maybe you can take a break or try starting the business you have always wanted to build or reduce your working hours to care for yourself or your family or even reduce the savings buffer to fund some income-generating investments to replace your main income stream.

Have 2 years? You can travel the world.

You get the idea. The larger your buffer, the more options you have. Here is an interesting view on this (NSFW warning: language).

If your savings does attract a decent interest, that's a bonus. But if it creates additional stress because you need to keep moving your savings around, then it kind of defeats the purpose.

An important concept that people often overlook is consistency and sustainability. Have a clear understanding of your needs and your expectations; find your North Star. Then everything follows from there and you can sustain it for a long time.

Seen in this light, does a 1%-point decrease in savings interest change anything? Not really.

If anything, it lowers the cost of borrowing; good if you have a floating-rate mortgage or have a credit line as part of your strategy.

Bonus: credit line

We are often taught to not be in debt, to spend within your means. Yes that’s correct and good.

But not all debts are inherently bad. It can be a useful tool if you know what you are using it for and also have a clear and feasible repayment plan.

It can be as simple as putting expenses on a credit card, easily getting a few weeks of interest-free loan, or more recently, using buy-now-pay-later schemes. It can also be as complex as a mortgage or other secured loans.

Need to be admitted to a hospital? Put down your guarantee on credit, get treated first, and figure out how to withdraw your emergency funds later (ideally, you have insurance coverage for this).

Lost your phone? Get a replacement first without worrying how to withdraw your emergency funds now.

You get the idea — a credit line can be part of your “emergency funds” toolbox.

I am not advocating debt as a tool for everyone to freely use. Know your needs and your risk appetite, as well as the debt products you are signing up for. I am not even going to insert any referral links for this.

To be clear, when looking at debt, know why you are taking up the loan, what it will be used for, and have a clear and feasible plan to repay the loan on time and fully. It can be a useful tool if you know what you are doing. Otherwise, stay away and sleep well at night.

Summary

Instead of chasing the highest savings interest rates, we should first understand our needs and have clear expectations for our savings. For example, I view cash savings as a source of flexibility and options, rather than a means of generating returns. To answer the initial question, for me, it’s probably better to do nothing after all.

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