Investing in the Singapore Savings Bonds (SSB) may not be the sexiest investment for growing our wealth. However, the popularity of the Singapore Savings Bonds has slowly increased since it was first issued in 2015, and today, many see it as a viable and valuable part of our investment portfolio.
What Are Singapore Savings Bonds?
The Singapore Savings Bonds are bonds that are issued by the Singapore government via the Monetary Authority of Singapore (MAS). The government has committed to issuing the Singapore Savings Bonds every month for at least five years after its launch.
It was first offered to individuals, above 18 years, in October 2015. While we can choose to withdraw our investments in it at any time, the Singapore Savings Bonds have a maximum term of 10 years.
In the 10-year period, the interest rates we receive on the Singapore Savings Bonds “step-up” on a yearly basis to give us a better return for each year we leave our money in the in. For example, the November 2018 issue looks like this:
|Year From Issue Date||Interest (%)||Average Return Per Year (%)*|
*At the end of each year, on a compounded basis
Source: Singapore Savings Bond Website
As we can see, the interest rates go up every year we continue to hold on to the Singapore Savings Bonds. This is the “step-up” interest rate feature. On the right column, we can see the average return on our investment, given that we receive a better interest rate each year.
For this particular issue, if we continue to hold the Singapore Savings Bond for the full 10-year period, we will receive an interest return that is very close (at 2.48%) to what the CPF Ordinary Account (OA) is paying on our balances (at 2.50%), without even locking our funds up.
The Singapore Savings Bonds have a minimum investment amount of $500 and a maximum saving amount of $100,000. This means we must invest at least $500, or multiples of $500, in any bond issue. We are also limited to having an individual holding amount of $100,000, across the entire Singapore Savings Bond programme.
We can make withdrawals from our Singapore Savings Bonds investments at any point, in multiples of $500.
The Singapore Savings Bonds pay out interest rates every six months. These interest payments are tax-free.
Why Should People Consider Investing In The Singapore Savings Bonds?
We list a few compelling reasons below:
# 1 It Is A Risk-Free Investment
Backed by the government of Singapore, which has been accorded the strong credit rating by international credit rating agencies, including Moody’s, S&P and Fitch, the Singapore Savings Bonds is virtually risk-free.
This means investors do not have to worry about any capital loss or interruptions in the payment of interest rates.
# 2 It Allows For Diversification Of Our Investment Portfolio
The Singapore Savings Bonds is a government bond.
This means we can diversify our investment portfolio if it is made up of just stocks, or even if it includes bonds issued by companies (which are not risk-free).
# 3 High Liquidity
Even though they’re termed the “Singapore Savings Bonds”, we are able to retain a high level of liquidity by being able to withdraw our investments at any time, with no penalties. This gives us the ability to earn high interest rates on our emergency funds and also any savings we are not sure when we will need to use (for wedding, renovation,… etc).
The same cannot be said of most bonds, even other Singapore Government Securities, which has to be traded at market value (which can be higher or lower) if we need to withdraw from our investments early. These can be significantly different from our principal sum, especially in an environment where interest rates are rising quickly.
Compared to savings accounts, these bonds give us a slightly inferior liquidity, however, we enjoy from getting much higher interest rates. Compared to fixed deposit accounts, which typically penalise us for early withdrawals, the Singapore Savings Bonds also trumps.
# 4 We Can Invest From As Little As $500
Also mentioned earlier, we can start investing in the Singapore Savings Bonds from as little as $500. Many corporate bonds in the market require us to investment $100,000 or even $250,000 in them. Even for other Singapore Government Securities, we still need to invest from $1,000.
# 5 Regular Interest Payments
With interest payments every six months, we have visible cashflows, and we are able to plan our expenses around these interest payments. This is especially relevant if we are using it to supplement our retirement income.
# 6 High Returns
We’ve already mentioned that the Singapore Savings Bonds give us close to what the CPF OA would pay us over 10 years, without even having to lock up our savings.
Looking at a shorter time horizon, the 1-year return is 1.80% and the 2-year return is 1.94%, this beats out many high savings and even fixed deposits offered by banks in Singapore.
Three Cons To Consider As Well
# 1 We Only Get Higher Interest Rates At The Tail-End Of the Singapore Savings Bonds
As we can see from the table above, we earn an average interest return of 1.80% in year 1, 1.94% in year 2 and 2.04% in year 3. It is only when we get to the end of the 10-year period where we see our average return become 2.43% in year 9 and 2.48% in year 10.
This means if we have to make early withdrawals, we will not be enjoying the near-CPF OA returns we thought we could get.
# 2 Bond Issues Give Different Interest Rates Every Month
The November 2018 issue is paying out 2.48% over a 10-year period. While this was an increase from September 2018 and October 2018, it has come down from July 2018 and August 2018.
At the same time, we also have to pay attention to the near-term returns. This is because the returns can compound differently. Based on the 10-year returns, the July 2018 issue would have been the best issue, among the four. However, based on the 2-year returns, the August 2018 issue is the best.
This means we have to understand our investment horizon as well.
# 3 There Is A Cap On How Much We Can Invest: $100,000
Lastly, there is a limit of $100,000 that we can invest in the Singapore Savings Bonds.
Beyond this amount, we may have to consider investing in other Singapore Government Securities, other retail bonds, and even riskier assets such as stocks.
How To Start Investing In The Singapore Savings Bonds?
Step 1: What We Need Before Applying
Before we even start investing in the Singapore Savings Bonds, we need to ensure that we have a bank account with one of the three local banks in Singapore – DBS/POSB, OCBC or UOB.
We also need to have a CPD account that is linked to our bank account through direct crediting service (DCS). This allows us to purchase the Singapore Savings Bonds, via ATMs, and will be stored in our CDP account.
The CDP will also process the applications, interest payments and redemptions of our Singapore Savings Bonds investments.
Step 2: Apply Via ATMs or Internet Banking
Once we ensure we have everything in step 1, we can proceed to apply for subsequent Singapore Savings Bonds issues via the ATMs or internet banking services of DBS/POSB, OCBC or UOB. When we do this, we need to have our CDP account number on hand.
Once we apply, the money will be directly deducted from our bank account.
We can only apply from 6pm on the 1st business day of the month to 9pm on the 4th last business day of the month for each Singapore Savings Bonds issue. For example, in November, we can only apply from 6pm on 1st October to 9pm on 26th October.
Once we apply, we will also see that a $2 non-refundable transaction fee will be applied on our application. This fee (which also applies for IPO applications), will apply to all Singapore Savings Bonds applications and withdrawals.
Step 3: Check For Your Singapore Savings Bonds Allotment
On the 3rd last business day of the month (29 October for our November issue example), MAS will allot new Singapore Savings Bonds to those who successfully applied.
While rare, we may receive less Singapore Saving Bonds than what we have applied for if there is an oversubscription. In November 2018, $300 million worth of Singapore Savings Bonds is available. If people apply for more than $300 million worth of Singapore Savings Bonds, not every will receive what they have applied for. If we do not receive the amount of Singapore Savings Bonds that we applied for, the excess cash will be refunded to our bank account.
The Singapore Savings Bonds will be issued on the 1st business day of the following month (1 Nov for the November issue). We will notified via mail of the amount of Singapore Savings Bonds allotted to us or we can verify it online through the CDP Internet service, or calling CDP at 65357511.
Step 4: Receive Interest Returns
After six months, we will receive our first interest payment on our Singapore Savings Bonds. This will be automatically paid into our bank account, linked to our CDP account. We will continue receiving interest payments every six months after that.
Consider investing in different issues to smooth out the difference in interest returns on the particular Singapore Savings Bonds issue, as well as receive interest payments on a staggered basis so we can either reinvest the same way or use for our daily living needs.