An individual’s savings can be critical in achieving financial stability and security. In Singapore, there are several ways to grow one’s savings. One such way is through an RSP or regular savings plan. An RSP is a savings plan offered by banks in which customers make fixed monthly deposits into their accounts. The account typically earns interest, and the customer can usually withdraw the funds after a fixed period, such as 3 or 5 years. Those interested can check out what a Saxo regular savings plan provides.
Benefits of opening an RSP
You can develop good financial habits
An RSP account can help you save regularly and develop good financial habits. When you make fixed monthly deposits into your account, you will get into the habit of saving regularly. This habit can be beneficial in the long run as it can help you build up significant savings over time, thereby achieving financial stability.
You can earn interest
An RSP account typically earns interest. Your savings will grow over time as the interest is added to your principal amount.
An RSP has a fixed term
An RSP account usually has a fixed term of 3 or 5 years, meaning you will not be able to withdraw the funds during this period. It can be beneficial as it helps to discipline your spending and encourages you to save for the long term.
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You may be subject to a bonus
When you open an RSP account and make fixed monthly deposits for the entire term of the plan, some banks may offer a bonus. This bonus can be in the form of cash or additional interest.
You can get tax relief
The interest earned on your RSP account is usually exempt from income tax, meaning you can keep more of your savings.
Risks of an RSP
You may lose money if you withdraw early
If you withdraw your savings before the end of the RSP term, you may lose money because you will usually have to pay a penalty or fees for early withdrawal.
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Your savings may not keep up with inflation
The interest earned on your RSP account may not be enough to keep up with inflation, meaning the purchasing power of your savings will decrease over time.
You may not reach your financial goals
If your financial status changes, you may find it difficult to continue making the monthly deposits into your RSP account. It may make it challenging to reach your financial goals.
Your RSP may be suspended
Your RSP may be suspended if the bank stops offering the plan, meaning you will not be able to make any more deposits into your account.
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The interest rate may change
The interest rate on your RSP account may change, which can impact the growth of your savings.
How to set up an RSP
Choose the bank you want to open an account with
Several banks in Singapore offer RSP accounts. You can compare the features and benefits of each account before choosing one that best suits your needs.
Determine how much you will deposit each month
The amount you can deposit into your RSP account will depend on your chosen bank. Some banks have a minimum monthly deposit, while others have a maximum limit. It would be best to decide how much you can afford to save each month before opening an account.
Open an RSP account
You can usually open an RSP account online or at a branch of your chosen bank. You’ll need to supply some information, like your name, date of birth and contact details.
Start making monthly deposits
Once you have opened your RSP account, you can start making monthly deposits. You can usually do this by setting up a standing order with your bank. It will ensure that the money is regularly transferred from your account to your RSP account.
Review your account regularly
Regularly reviewing your RSP account is essential to ensure it is still meeting your needs. You should also check that you can still make the monthly deposits. If you need to, you can adjust the amount you are saving each month.