What Is a Savings Account and How Do They Work?

Though interest rates offered by banks change according to economic conditions, savings accounts generally provide higher interest rates than current accounts. Savings accounts usually don’t come with initial deposit or monthly account fees, though you may be charged anywhere between $2-5 if your account dips below a stipulated amount. 

When opening a savings account, always note the minimum balance required and what fall-below fees you may incur if your balance dips below what’s required. Do also consider withdrawal limits at the bank and the ATM, and ensure that the minimum account holding period works for you.

Unlike current accounts, banks typically do not provide savings accounts holders with cheque books. You will, however, get a passbook that you can update at ATMs. One important thing to note about savings accounts is that your interest rates can suffer if you make withdrawals—do use your current account instead where possible. Some examples of savings accounts available in Singapore are DBS Multiplier Account, UOB One Account, POSB eMySavings Account and OCBC 360 Account.

To help you understand how savings accounts work, here’s a quick summary of what you can expect when shopping around for a new savings account. Let’s start with initial deposit fees, which refers to the minimum amount of money needed to open your account. This sum varies across financial institutions. For instance, there are no initial deposit fees required for signing up for a DBS bank’s eMySavings account, while signing up for a OCBC bank’s Bonus+ Savings account requires an initial deposit of $5,000. 

Next, let’s go over monthly fall-below fees. These are penalties you incur when your account falls below a minimum sum. When a UOB Stash account holder’s balance falls below $1,000, they will have to pay $2 monthly. Contrast this with a DBS Multiplier account holder, who will have to pay $5 monthly, if their balance should fall below $3,000. 

Ever wondered what the term “tiered interest rates” is all about? This refers to interest rates offered by the same product, by the same bank, which changes according to your account’s monthly average balance. One good example of this is how UOB One Account holders can see their bonus interest on their savings go up from 2-6% over time, as their balance grows and they spend more with their UOB card.

One unique benefit of savings accounts in Singapore is that they are non-taxable. Compare this with the United States of America, where interest earned on traditional savings accounts are considered taxable income. This also applies in the United Kingdom, where any earnings exceeding your Personal Savings Allowance, which includes savings bank accounts, are subject to tax.

You need to be at least 16 years old and provide your NRIC for verification to open a savings account in Singapore. You may also have to provide your phone bill, half-yearly CPF statement or a bank statement. Some banks, like DBS and UOB, allow for easy sign-ups online by allowing for verification through SingPass. Digital banks, like Trust Bank and GXS Bank, have savings accounts touting zero sign-up fees and no minimum balance requirements.

How do I use a savings account?

Now that you have a better understanding of how savings accounts work, let’s talk about how we can manage them more efficiently. One way you can encourage yourself to save more in the age of internet banking is to set up automated monthly transfers.To accomplish this, you need to know what electronic funds transfer services are available in Singapore and also how local standing funds transfers operate. Let’s start with the former.

Launched in 2017, PayNow lets you transfer SGD instantly to a payee, by using their mobile number or NRIC/FIN instead of their bank account number. PayNow can be used for retail purchases, personal funds transfers or paying bills. There’s also FAST, established in 2014, an instant funds transfer service that lets you move funds between participating banks and non-financial institutions. You can use this to pay everything from car parking fees to insurance premiums. Finally, there’s GIRO, Singapore’s oldest automated electronic payment service often used for monthly bill payments—set up all the way back in 1984.

Now, let’s move on to local standing funds transfers. Let’s say you are saving up for a new car and have 2 bank accounts with Bank A and Bank B. Your salary goes into Bank A every month and Bank B contains your savings. A Standing Instruction service would be the perfect way to set up a recurring local funds transfer from Bank A to Bank B, so you are continually encouraged to meet your savings goal.

Between these options, GIRO and local standing funds transfer are the clear winners, being automated and easy to use.

How is interest paid?

When it comes to banking, interest is paid annually. The more you have in your account, the more interest you earn every year. The way this works is similar to compound interest, which DBS bank refers to as a “wealth-generating machine in the long run”. This is because compound interest is interest earned on top of interest, which translates into huge gains—especially if you have a larger principal sum or a longer time period to work with.

When comparing interest structures across multiple savings accounts, check for eligibility requirements for reaching your desired tier of interest. Often, these consist of crediting your salary to the bank via electronic funds transfer and utilising at least one other product, such as credit card purchases or investments. When it comes to options for raising that interest rate, OCBC 360 offers up to 6 options, from insurance to growing your balance. On the other hand, if you know you need to take out a home loan, you might want to consider making use of DBS Multiplier’s home loan instalment option. As for UOB One, it may be the perfect option for those who mainly spend with their credit card and make GIRO debit transactions.

If available, do also look out for Effective Interest Rates (EIR). This invaluable information takes into account other factors which affect interest rates, like compounding frequency and associated costs. For example, OCBC 360 accounts offer up to 4% interest rates if you credit your salary of at least $1,800 via electronic fund transfers, but this translates to an EIR of just 2.5%. 

One last thing to note is that banks occasionally offer promotional interest rates, but these are temporary and will revert back to lower rates after a period of time.

How many savings accounts can I have?

Singapore does not impose any limits on the amount of savings accounts you can have. People may open new savings accounts for all sorts of reasons, including hitting new life milestones, such as starting a new job, going overseas to study or starting a new life together with a special someone. People may also set up additional accounts for securing emergency funds or to simply maximise interest rates across various financial institutions.

>>  MORE: Pick the right savings account for you

From the very first savings account your parents opened for you when you were a child, to the Supplementary Retirement Scheme (SRS) designed for saving for retirement, there are many types of savings accounts available to choose from. 

Basic savings account

We’ll begin with the most rudimentary of savings accounts, which typically offer the lowest interest rates and have fewer restrictions. For example, you can open a POSB eMySavings account without paying any initial deposits or service fees. Similarly, new OCBC Passbook Savings basic account holders only need to deposit a minimum amount of $1.

High interest savings account

Making multiple purchases regularly as you’re settling into your new home or job? A high interest savings account can net you bonus interest rates and boost your savings. DBS Multiplier may be a good pick for young working adults or fresh graduates as there is no minimum spend required—you’ll be able to see interest rates on your savings go from 1.8-4.1% as your balance grows. OCBC 360 is also a strong contender for young adults, as they offer bonus interest of up to 4.65% for your first $100,000*. Last but not least, there’s also UOB One, which rewards you with an interest rate of 6% if you have at least $150,000 in your account and frequently use your UOB credit card and make GIRO debt transactions.

*Applicable when you credit your salary, spend and save with OCBC 360.

Child or youth savings account

Teach your little ones the value of saving from an early age with savings accounts designed especially for children. These savings accounts generally have low or no initial deposit requirements, offer low interest rates and are for those below the age of 16. OCBC Mighty Savers and POSB Smart Buddy, for example, have no initial deposit requirements. As for UOB’s Junior Savers account, you can sign up with a minimum initial deposit of just $500.

Multi-currency savings account

Travel multiple times a year for business or pleasure? You might need a multi-currency savings account so you can make instant payments or transfers in multiple currencies, and get access to cheaper conversion or exchange fees. Hold up to 13 different currencies with a DBS My Account at attractive rates with no foreign exchange conversion fees. Or opt for an OCBC Global Savings account to transact in 10 currencies with no foreign currency transaction fee when using your OCBC debit card. Have business dealings in the United States of America? An UOB Global Currency account allows for transactions in 10 currencies and expedited clearance for USD cheques. 

Fixed deposit account

Boasting higher interest rates than your typical savings account and the stability of a fixed interest rate, low-risk fixed deposit accounts are a popular choice for those new to investing. DBS Fixed Deposit and CIMB SGD Fixed Deposit accounts let you earn interest from deposits starting from as low as $1,000. Want to earn interest on a foreign currency? OCBC Time Deposit gives you the option to choose between your choice of a foreign currency or SGD. The initial deposit is significantly higher, however, at $5,000.

Supplementary Retirement Scheme account

Introduced in 2001, the Supplementary Retirement Scheme (SRS) is meant to complement the Central Provident Fund (CPF), the nation’s retirement savings scheme. Unlike the CPF, participation in the SRS is voluntary and any contributions are subject to the member’s discretion. SRS contributions are a good way to get tax relief and lower your income tax obligations. If you’re thinking of putting your SRS funds to work, consider investing. Choose from government-approved investment options like Singapore Savings Bonds, blue chips shares and index funds. Sign up for a SRS account at any local banks, such as DBS, OCBC, POSB and UOB.