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Is the 1-year T-bill Better than the 6-month T-bill and Fixed Deposits in Singapore?

Last updated: February 2024

Key Takeaways

  • 1-year T-bills generally offer higher yields than 6-month T-bills due to longer maturity.
  • Fixed deposits provide a guaranteed return but may underperform in rising rate environments.
  • T-bills are low-risk government-backed securities; fixed deposits are bank products with set interest rates.


Unlock the potential of T-bills and fixed deposits: Understand their returns, risks, and how they fit into Singapore’s changing economic landscape.

Question: Is the 1-year T-bill better than the 6-month T-bill and fixed deposits in Singapore?
Answer: The 1-year T-bill may offer higher yields than the 6-month T-bill due to its longer maturity, providing a term premium. However, whether it is better than 6-month T-bills or fixed deposits depends on current interest rates, the economic environment, and personal investment goals. Fixed deposits offer guaranteed returns but could be less favorable in a rising interest rate environment, while T-bills offer government-backed security with varying rates. Assess each option’s suitability based on your financial objectives and market conditions.

When comparing investment options like the 1-year Treasury bill (T-bill) and the 6-month T-bill against fixed deposits in Singapore, one must consider various economic indicators and personal investment goals. As an investor, I assess these options based on their interest rate returns, liquidity, risk profile, and the current monetary policy environment. The T-bills, being short-term government securities, offer a secure investment with predictable returns, while fixed deposits provide a stable interest rate over a predetermined period.

Analysing the optimal choice necessitates a thorough understanding of how these investment vehicles react to market changes. With the shifting economic landscapes and the interest rate movements set by the Monetary Authority of Singapore (MAS), the appeal of T-bills and fixed deposits can fluctuate. As I explore this topic further, my aim is to present an informed perspective on which investment might best serve investors seeking minimal risk and consistent returns.

It’s essential to note that while T-bills are backed by the Singapore government and hence bear low credit risk, their interest rates can vary with market conditions, potentially impacting yields over time. Fixed deposits, on the other hand, offer a fixed return but could be less attractive in a high-interest-rate environment if they are locked in at a lower rate. My investment strategy prioritises adapting to the dynamic financial climate, which is crucial when discerning the relative merits of these investment options.

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Overview of Treasury Bills and Fixed Deposits

In examining investments like Treasury bills and fixed deposits, we should grasp their unique attributes and their roles within Singapore’s financial landscape.

Definitions and Key Concepts

Treasury bills, or T-bills, are short-term, secure financial instruments issued by the government of Singapore with maturities ranging from a few days to one year. They are sold at a discount and redeemed at face value at maturity; the difference represents the investor’s earnings. Fixed deposits are bank-issued financial products, offering a guaranteed return over a specified period, with the interest rate fixed for the deposit’s duration.

Types of Treasury Bills in Singapore

Singapore offers two main types of Treasury bills: 1-year T-bills and 6-month T-bills.

  • 1-year T-bills: Maturity of one year, considered a short-term investment, typically offering lower risk and lower returns.
  • 6-month T-bills: Maturity of six months, also low-risk, and they provide returns more quickly but may offer different interest rates compared to the 1-year T-bills.

Fixed Deposits in Context

I characterise fixed deposits as bank-given investments with a greater degree of predictability than T-bills. Interest rates for fixed deposits depend on the term length and the amount deposited. Banks often offer these options:

  • Short-term deposits: Usually offering lower interest rates and providing flexibility.
  • Long-term deposits: Typically feature higher rates to compensate for the longer commitment of funds.

Comparative Analysis of 1-Year T-Bills and 6-Month T-Bills

In my analysis, I focus on the distinguishing characteristics of 1-year Treasury bills (T-bills) and 6-month T-bills to help investors understand their implications on returns, liquidity, and investment horizons.

Interest Rate Considerations

Interest rates play a pivotal role in the attractiveness of T-bills. A 1-year T-bill typically offers a higher annualised yield compared to a 6-month T-bill due to the longer commitment of funds, reflecting a term premium. This can influence my returns as an investor, especially in a rising interest rate environment. The table below illustrates a hypothetical scenario:

T-bill TypeAverage Yield (%)

Maturity Terms and Liquidity

When it comes to liquidity, a 6-month T-bill can provide me with more frequent access to my capital, since it matures in half the time of the 1-year T-bill. This is key if I anticipate needing the invested funds or wish to reinvest at potentially higher rates in the near term. However, such short-term investments may not always offer the best returns if interest rates are stable or declining.

Investment Duration Preferences

My investment duration preference is a decisive factor when choosing between these T-bills. If I’m planning for a short-term financial goal, a 6-month T-bill may align better with my time frame. Conversely, if my goal is over a year away, a 1-year T-bill could offer a slightly higher yield due to the longer duration, holding all else equal. My investment strategy should consider the forecast for interest rates and my individual liquidity needs to determine the best fit.

Analysis of T-Bills Versus Fixed Deposits

In evaluating investment options like Treasury bills (T-bills) and fixed deposits in Singapore, my focus lies on their risk-return dynamics, inflation impact, and regulatory safety.

Risk and Return Profiles

When considering T-bills, especially the 1-year versus the 6-month, I note that they’re generally low-risk as they’re backed by the Singapore government. However, they typically offer lower returns compared to certain fixed deposits with comparable maturities. For fixed deposits, banks in Singapore provide a fixed interest rate, which can sometimes be higher than what T-bills offer, particularly during periods of rising interest rates.

Impact of Inflation on Returns

In terms of inflation, my findings highlight its erosion effect on investment returns. T-bills might have an edge here due to their shorter maturities, allowing investors to reinvest at potentially higher rates in an inflationary environment. Conversely, fixed deposits are more susceptible to inflation risk since the locked-in rates might not keep pace with inflation over the deposit term, leading to a decrease in real returns.

Regulatory and Safety Aspects

On the regulatory front, the Monetary Authority of Singapore (MAS) oversees the issuance of T-bills and the operation of banks offering fixed deposits. Both investment types are deemed secure, but T-bills have a definitive guarantee from the government. Fixed deposits are protected under the Singapore Deposit Insurance Corporation (SDIC) scheme for up to SGD 75,000 per depositor per bank, which adds a layer of safety to my investments in fixed deposits.

Historical Performance Data

In analysing the relative advantages of the 1-year T-bill, the 6-month T-bill, and fixed deposits in Singapore, I find it crucial to examine their historical performances.

Past Yield Trends

Looking over the past decade, I’ve observed that the yields for 1-year T-bills have generally fluctuated with broader economic conditions, tending to rise during periods of higher inflation and monetary tightening. For instance, in the past five years, average yields have ranged from approximately 0.5% to 2.5%. By comparison, 6-month T-bills have also seen similar fluctuations but often yield slightly less due to their shorter maturity.

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Source: Tradingview

Historical Default Rates

The default rates are another vital aspect of the performance analysis. The Singapore government backs both the 1-year and 6-month T-bills, which have consistently held a AAA credit rating denoting the lowest possible risk of default. In fact, there have been no recorded defaults on Singapore T-bills, underscoring their reliability as an investment. By contrast, fixed deposits carry a different risk profile, largely dependent on the financial health of the specific banking institution; yet, even these have shown to maintain extremely low default rates historically.

Historical Default Rates

Financial InstrumentRecorded Defaults
1-year T-bill0%
6-month T-bill0%
Fixed Deposit<0.1%

Current Economic Indicators

In this section, I’ll examine the key economic indicators that can influence the performance of 1-year T-bills, 6-month T-bills, and fixed deposits in Singapore.

Interest Rate Forecast

The Monetary Authority of Singapore (MAS) has not signalled any drastic changes in the near term. However, prevailing global economic conditions suggest a possible upward trend in interest rates. I’ve reviewed recent financial reports and economic forecasts, which indicate that the SIBOR (Singapore Interbank Offered Rate) is expected to rise marginally. This potential increase will likely affect the yields on T-bills and fixed deposits, as they are correlated with interest rates.

Economic Outlook

The Singaporean economy is currently demonstrating resilience with steady GDP growth. Projections for the upcoming fiscal year suggest a continuation of this stability, barring unforeseen global market shifts. The economic health of Singapore, as measured by factors such as unemployment rates and manufacturing output, is strong. Such positive indicators are typically conducive to a stable interest rate environment, which in turn may influence investment decisions regarding T-bills and fixed deposits.

Investment Strategies for T-Bills and Fixed Deposits

In this exploration of investment strategies, I will focus on the applicability of diversification principles and the role of portfolio considerations when selecting between 1-year T-bills, 6-month T-bills, and fixed deposits in Singapore.

Diversification Principles

Diversification is a critical component of investment strategy. It involves spreading investments across different asset classes to reduce risk. When considering T-bills and fixed deposits, it’s prudent to diversify across both, as well as within the category of T-bills.

  • T-Bills: Diversification can be achieved by:
    • Investing in both 1-year and 6-month maturities
    • Allocating funds across different issue dates to stagger maturities
  • Fixed Deposits: Diversification may involve:
    • Selecting fixed deposits with varying terms and interest rates
    • Distributing investments across different financial institutions

Incorporating both short-term T-bills and longer-term fixed deposits could balance liquidity needs with the desire for slightly higher returns that typically come with longer maturities.

Portfolio Considerations

My portfolio considerations involve an analysis of risk tolerance, investment horizon, and financial goals. I take these factors into account:

  1. Risk Tolerance:
    • T-bills are generally considered lower risk than fixed deposits due to the government guarantee.
    • Differing risk profiles of financial institutions offering fixed deposits require careful assessment.
  2. Investment Horizon:
    • A 1-year T-bill might be preferable for an investor seeking low risk but willing to lock in funds for a full year.
    • A 6-month T-bill could be more suitable for those requiring greater flexibility and access to their funds.
  3. Financial Goals:
    • If my goal is preservation of capital, T-bills might be the primary choice.
    • Should I aim for slightly higher interest earnings, longer-term fixed deposits could be part of my strategy, provided they align with my overall risk appetite.

Investors should carefully evaluate the potential impacts of interest rate fluctuations on their portfolio, especially as they pertain to reinvestment risk with T-bills and the potential for early withdrawal penalties with fixed deposits.

Final Recommendations

In making a sound financial decision, I consider specific investment vehicles based on personal financial goals and the current market environment. Let’s break down the suitability of the 1-year T-bill, 6-month T-bill, and fixed deposits in Singapore.

Individual Financial Goals

For investors focused on capital preservation with a short-term horizon, fixed deposits may be the most appropriate. These instruments traditionally offer:

  • Guaranteed Returns: The interest rate is fixed for the entire term.
  • Lower Risk: There is minimal risk of losing the principal amount invested.

Conversely, T-bills are best suited for those seeking slightly higher returns potentially and are willing to have minimal fluctuations in return rates. The 1-year T-bill rates generally reflect longer-term market expectations than the 6-month T-bill, but both lack a fixed interest rate, which can be a critical factor in decision-making.

Market Timing and Interest Rate Cycles

Market conditions greatly influence the decision. In a rising interest rate environment, the 6-month T-bill could be more attractive due to its shorter maturation period, allowing investors to:

  • React Quicker to Rate Changes: Opportunity to reinvest more frequently at higher rates.
  • Reduce Interest-Rate Risk: Lower exposure to the impact of rate increases compared to longer maturities.

In contrast, if the rates are expected to fall, locking in a 1-year T-bill might be more beneficial:

  • Securing Higher Rates: Advantage of setting a rate before a potential decline.
  • Longer Stability: While not as long as fixed deposits, still provides a predictable outcome for the year.

Investors should monitor economic markers and rate forecasts to align their choices with the interest rate trends.

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