Looking into StashAway Simple (Malaysia)

At the time of writing this post, StashAway Malaysia had just launched a new product and I was notified via an email with the heading:

Introducing StashAway Simple™, a better way to grow your cash.

I am already investing via StashAway (that’s why I got the email in the first place), and getting to know a new way to make extra returns is always a plus!

What is StashAway Simple?

StashAway Simple is a Shariah-compliant cash management portfolio that earns a projected rate of 2.4% per annum (p.a.) on your deposited amount. It is calculated daily and paid out monthly.

As an intro, StashAway is a robo-advisor company founded in 2016 in Singapore, and expanded into Malaysia end of 2018. Think of mutual funds but with robots investing for you based on the level of risk level you choose.

This post is specifically about StashAway Simple and will not be discussing about the robo-advisors industry.

What benefits does StashAway Simple offer?

Extracted directly from the email, here’s what is promoted:

• No lock-up period
• No minimum deposit requirement
• Unlimited, free transfers
• One flat rate for any balance
• No cap on how much you can earn
• No investment requirements
• Shariah-compliant
• No asterisks. No hoops. No catch.
• And did we mention that we’ll manage your cash for free?

Most of the points above are direct jabs at banks, which I’ll be doing a comparison in the last section of this post.

Simply put: StashAway Simple is like a savings account that pays you 2.4% interest per year.

The Projected Rate of 2.4%

The “projected rate” of 2.4% is calculated based on:

• The fund’s expected % return
• (-) The fund’s fees of 0.29%
• (+) Rebates offered by the fund of 0.125%

StashAway Simple puts your money into a fund known as Eastspring Investments’ Islamic Income Fund, which essentially is a unit trust investment. So I did some digging:

1. Eastspring Investments is the Asian asset management business of Prudential PLC (Yes, the insurance company). Eastspring Investments has been around since 1994 and has presence in 11 countries.
2. Islamic Income Fund was launched in Feb 2007 and the fund invests in fixed deposits with Islamic banks, the top 3 being Ambank Islamic Bhd (21%), RHB Islamic Bank Bhd (21%) and Public Islamic Bank Bhd (17%) as at 30 April 2020.

Looking at the historical returns of 3.5% and above, I’m sure you’re wondering why then does StashAway Simple only has a projected rate of 2.4%. Refer to the next section on the interest risk and I’ll explain further.

Based on the results above, StashAway Simple is similar to putting your money directly into the banks’ fixed deposits to generate income and is doing through a unit trust structure managed by a reputable company.

There is a fee that the fund manager charges, but in return you get to diversify to all the big banks instead of putting them in a single bank. StashAway itself charges the investor nothing.

What are the risks for StashAway Simple?

2 main risks here:

1. Default risk: In the unlikely event that any of the banks do not pay the profit rate or deposit owed. Technically we will have bigger things to worry about if this happens because it means the financial system is failing.
2. Interest risk: The projected rate is directly linked to the profit rates that the banks offer, which is closely linked to the Overnight Policy Rate (OPR) that Bank Negara Malaysia (BNM) has been cutting of late due to the Covid-19 crisis. To put into perspective, it went from 3% to 2% in less than 6 months (May 2020) and the market believes that there may be further cuts incoming. Now you can understand why the fund’s return is also projected to be around 1% lower than what they have historical delivered, right?

How does StashAway Simple compare to banks?

In Malaysia, we have a wide array of banks to pick for our banking needs, with each bank offering a their own set of products.

Per BNM’s records at this moment, there are 26 commercial banks and 16 Islamic banks, of which there are overlap in names because a bank can have both conventional and Islamic services. The ones I’ve studied for the purpose of this comparison are Affin, Alliance, Ambank, CIMB, Hong Leong, Maybank, OCBC, Public, RHB.

Given the nature of StashAway Simple, I’ll be drawing a comparison to CASA (current account / savings account) and fixed deposit products by banks.

StashAway Simple seems to be a hybrid between savings account and fixed deposit, with it being quite flexible like a savings account and earning a decent interest rate that is higher than fixed deposits (without promo).

In Closing

So is StashAway Simple worth putting your money in?

My take is this:

• Priority goes to high interest account as it can fetch the highest interest and has a certain degree of flexibility. The only catch here is that you must be able to consistently meet the Bonus Rate requirements to make it sensible. Example of such accounts are OCBC 360 Account, RHB Smart Account, etc. Refer my other post for more savings accounts comparisons.
• If that’s too troublesome or you have hit the max cap for the high interest account, I’d suggest manage your savings in 2 categories
  • For cash that you don’t need to use for the foreseeable future (e.g. major emergency funds), park in a fixed deposit with promotional rates higher than 2.4%
  • The buffer cash that you want to keep available at the ready to be stashed in StashAway Simple to earn a steady 2.4%
• Take note that your liquid daily usage funds should be still be held in a normal CASA account or your high interest account as StashAway Simple takes a day or two for the transfer to reflect in your bank account

As for me, I’ll be using it as my secondary savings account. I am currently using a high interest account as my primary savings account.

Why not just invest in the normal StashAway then? That’s because the risk level is different. It’s like comparing putting money in your savings account vs buying shares in the stock market. At any time, it could become a loss position.

Don’t have an account with StashAway yet?
Feel free to sign up here with my link to get 6 months of fee waiver on the standard StashAway investment! This gives you access to StashAway Simple as your alternate savings account too!
Also check out my referral link / promo code page for other goodies for platforms that I use!