Inflation and Money Market Funds
The Singapore’s government forecast for inflation is 4.5 to 5.5 per cent this year. The average rate for the past 28 years had been 2 per cent. This means that if you had stashed your money in a biscuit tin, like what some old folks do, the $1000 you have become $667, by compounding the amount. If inflation stays at 5 percent, then the same $1000 becomes $359.
Some extremely risk averse non-investors simply put their money in the bank, earning meagre interest rates, would have lost money even if they did not try other ‘riskier’ instruments. Even the Citibank stepup account that promised up to 2% for deposits if you keep increasing the amount in the bank each month had changed their projects by reducing the percentage by a great deal. So far, only Fairpriceplus.com promised a 1% flat rate as they do not have a retail outlet as the operations are mainly online.
For such risk averse non-investors, they would be better off putting their money into money market funds. Money Market funds simply have economies of scales and they get higher interest rates that only apply to big amounts that the normal savers do not have.
For those who believe in fixed deposits, the amount is still not good enough. Some may try foreign currency deposits, since NZ currency interest rate is quite high, just like the Australian dollar.
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