What Is a Regular Savings Plan (RSP)?
RSPs are simply defined as monthly investment plans. It helps consumers set aside a fixed sum of money for the future on a regular basis. With these monthly plans, you can invest into your choice of assets such as stocks, Exchange Traded Funds (ETFs), or Unit Trusts.
These monthly investment plans are used for various reasons including saving for your child’s future, for a family vacation, for the increasing costs of living, and even for retirement.
RSPs are offered by various banks in Singapore such as DBS, POEMS, OCBC, and many more. With the ease of technology, you can even start a savings plan online. For example, DBS allows you to set up your regular savings plan easily with digibank online.
RSPs are not to be confused with savings plans offered by insurers, although they sound the same. Savings plans, or endowment plans, are generally capital guaranteed and you’ll have to make regular savings for a fixed number of years. RSPs conversely, are investment plans and not savings plans. We’ll explain more about RSPs in this post.
How Does an RSP work?
A savings plan focuses on dollar-cost-averaging (DCA), which is an effective strategy that helps to avoid trying to time markets. You would use the same monthly investment amount to buy units of the same asset.
DCA averages out the ups and downs of the market so that you don’t miss out on buying assets at the best prices. This is beneficial to new investors because it minimises the opportunity cost and is less stressful for them.
You can start your RSP with as low as a monthly investment amount of $100. RSPs are automatic but you are still able to change your monthly investment at any time. You can also end your plan whenever you want and resume it later if needed.
Advantages of RSPs
RSPs are easy to open with banks. You can make investments any time you need to do so.
RSPs ensure that you will be setting money aside on a regular basis to grow your portfolio. You can also time your investment outlay to coincide with when you receive your income, and this will allow you to better manage your personal finances.
Reduces Risk of Market Timing
Since RSPs are automatic and recurring, you don’t need to worry about market timing. By not having to time the market, you ensure that you stay invested and that your money is always growing.
Allows Investments of Smaller Amounts
RSPs allow you to invest small amounts at a gradual pace. Investing in small amounts allows you to set aside what you can afford, making it a flexible way to grow your portfolio. Even if you only contribute small amounts each month, regular investing adds up over time with the effect of compounding.
Compounding allows you to grow a small sum of money into a substantial amount over a long period of time. This is why you should start investing in your 20s as you will be able to maximise your returns over time. You can increase these amounts once you’re able to afford them in the future.
You can change your investment amounts at any time without incurring a fee, based on your financial status. This allows for some flexibility.
No Lock-In Period
RSPs do not have a lock-in period, which means you can switch savings plans whenever you would like to and stop whenever you need to.
Disadvantages of RSPs
Minimum Monthly Investments
RSPs have a minimum monthly investment of at least $100. You can either see this as a good or a bad thing. The good thing is that if $100 is all you can afford every month, you can get started quickly here.
However, it’s still not as flexible as investing via a robo advisor which usually has lower to even no minimum investments required.
RSPs Are Not Risk-Free
Even though you do not need to worry about market timing, you can still be exposed to other risks with the investments you make. For example, if you invest in something that doesn’t do well over the next few years, you will still face some losses. As this is still an investment, it means that your capital isn’t guaranteed. Thus, only invest what you can afford to lose.
Keep in mind that while investments occur automatically on a monthly basis, you will still need to monitor your portfolio and do your own research on the type of investments you would like to make.
Who Should Invest in a Savings Plan?
Do you think you should invest in a savings plan? The following will help you decide.
- Regular Savings Plans are for people who want a great return amount for long-term financial goals. If you are looking to save up for your children’s education or to save up before retirement, these savings plans are made for you. A savings plan is also suitable for you if you are looking to save up for your wedding or for your future apartment.
- If you are an overspender and would like to save and grow some money aside, you should invest in one. You will be forced to keep money aside which will be beneficial for you in the long term.
- If you are someone who changes your mind a lot and would like to start a savings plan but not commit to it, this is for you. As mentioned, there is no lock-in period for RSPs, so there is liquidity offered here as well and you can stop your plan anytime.
What You Need To Know About Regular Savings Plans
Most brokers and banks in Singapore, like Saxo and POEMS, allow consumers to start a regular savings plan at the age of 18. This allows you to grow your portfolio from a young age.
Fees You Can Expect to Pay
The fees for RSPs vary depending on who you decide to invest with and how much you decide to invest. If you choose to invest up to $500 in either DBS Bank, FSMOne, or OCBC Bank, you can expect to pay between $1-$5. You can find more information about the fees under each regular savings plan, which is explained below in the form of a percentage of the amount invested.
What You Can Invest In
There are three types of plans available. You can choose which one you would like based on your investment approach, and each type of plan has a different fee.
The first one allows you to invest in index funds or shares of companies. The best part is that you can choose your own investments.
The second type of plan allows you to invest in ETFs, which allows you to diversify your investments.
Lastly, the third type of plan allows you to invest in UTs, which is actively managed by professionals.
How You Can Receive Dividend Payments With RSPs
The main purpose of most Singaporeans when deciding to invest in RSPs is to receive dividends in return. Depending on which RSP you choose, your dividend payments will either be credited to your accounts, reinvested into your choice of counter, or paid out in cash.
Have a look here to see how you will receive your dividends based on your choice of RSP.
The Best RSPs in Singapore for Consumers
Deciding which RSP is the best choice for you is an important decision. Here are the most common providers that you can start a savings plan with in Singapore.
DBS/POSB Invest Saver
The POSB Invest Saver allows you to start investing with a minimum of $100 per month. You can invest in either ETFs or UTs. These include Nikko AM STI ETF, ABF Singapore Bond Index Fund, Nikko AM-StraitsTrading Asia ex Japan REIT ETF, and Nikko AM SGD Investment Grade Corporate Bond ETF. There is a fee of 0.50% or 0.82% per transaction for ETFs, 0.82% per transaction for UTs.
OCBC Blue Chip Investment Plan (BCIP)
Similar to most RSPs in Singapore, the OCBC BCIP also allows you to start investing at $100 per month. You can invest in any of the 20 counters in the Singapore market, including both stocks and ETFs. Counters are known companies that you are allowed to invest in. There is a fee of 0.3% of the total investment amount, or $5 per counter, however the fee depends on whichever is higher.
You should also be aware that new BCIP customers below the age of 30, with an initial investment up to $500, enjoy a flat buying rate of 0.88% of the total investment amount.
POEMS/Phillip Share Builders Plan
This plan also allows you to invest starting at $100 monthly. This plan offers 44 counters where you can make investments. These include stocks, ETFs, and UTs. The fees are $6 for 2 or less counters, and $10 for 3 or more counters.
FSMOne Regular Savings Plan
The minimum investment for this plan is $50 per month for ETFs, and $100 per month for UTs. You can choose to invest in ETFs, UTs, or managed portfolios. The fee for ETFs is 0.08% or min. $1, based on whichever is higher.
Saxo is a broker in Singapore that allows you to invest in RSPs as well. The minimum investment is also $100/month. They offer managed portfolios consisting of iShares ETFs. The bank has a service fee of 0.75% p.a. and a 0.23% expected ETF cost.
UOB Regular Investment Savings Plan
Like most of the plans mentioned above, the UOB Regular Investment Savings Plan allows you to invest starting at $100 monthly, but there is a required minimum initial lump sum investment of S$1,000. You can invest in SGD denominated UTs.
Regardless of which provider you choose in Singapore, making regular investments is a great way to begin saving and to start your investment journey. The sooner you begin, the more time you have to develop your portfolio and save up and set something aside for yourselves and for your future family.
If you’re unsure which RSPs are good for you, or even don’t know if you should be getting RSPs, always talk to a financial advisor. By obtaining financial advice, you ensure that your needs are taken into consideration before making any investment decisions.