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6 Investments In Singapore That Provide Guaranteed Principal And Returns

If guaranteed principal and returns sound good, here are 6 types of investments that you should check out.

 

This article was updated on 18 December 2018.

There aren’t many investments that guarantee your principal as well as returns in Singapore. Of those that do, you need to further weed out the potential scams – i.e. those that sound too good to be true.

One other thing to understand is that when you get to enjoy such safety in your investments and visibility in your cashflows, you need to be prepared to accept a rate of return that is close to the risk-free rate.

Risk-Free Returns

The risk-free return refers to a rate of return that you can expect to achieve even if you don’t take on any risk. Theoretically, there’s no such investment as there will always be some form of risk that we take on when making an investment.

Below, we look at six types of investments that you can put your money into which guarantees your principal and provides a guaranteed return. This can be a good way for those who are extremely risk averse or just unsure about investing.

#1 Singapore Government Treasury Bills

For us in Singapore, a good proxy for the risk-free rate can be the return that the government of Singapore, a triple A rated economy, pays on its 1-year treasury bills, the shortest-term government security available to us. This is as close to the risk-free rate as we can get and it offers a rate of 1.94% per annum (p.a.) – which means that you will be able to grow your money by 1.94% p.a. even without taking on any investment risk.

Treasury bills are useful for investors who are looking for very short-term investments of up to one year.

#2 Singapore Government Bonds

The Singapore government also issues longer-termed bonds, between two and 30 years. These would typically pay higher returns than the 1-year treasury bills, as it is deemed to carry slightly more risk being longer-termed. It is also regarded close to risk-free and hence offer a rate of return that is close to the risk-free rate as well.

Read Also: Different Types Of Bonds Available To Retail Investors In Singapore, And What You Should Be Looking At

Currently, the Singapore Government Bonds offer these rates on its most recent bond issues. As you can see, the 2-year bond yields lower than the 1-year treasury bill. This is likely because of the timing of the issue, and hence a slight difference in rates, rather than it actually being regarded as “safer” than the 1-year treasury bill.

Singapore Government Bond Term Median Yield (%) p.a.
2 1.88
5 2.17
10 2.61
15 2.78
20 2.82
30 2.90

#3 Singapore Savings Bonds (SSB)

By now, you’d likely see a common theme occurring. The investments that are most likely to guarantee your capital and your returns are fixed income investments issued by the government.

The SSB, launched in October 2015, pays a step-up interest each year, up to the 10th year. What this means is that the bonds pay a lower return in the beginning years, and if investors do not redeem the bond, it continues to pay a higher rate each year, until the 10th year. This is primarily to recognise the fact that investors are holding the bonds for a longer-term.

Read Also: How To Buy The Singapore Savings Bonds

Here’s the rate of each SSB issue, if you hold it for the full 10-year time frame, since its first in October 2015.

Issue Average 10-year return p.a (%)
October 2015 2.63
November 2015 2.78
December 2015 2.44
January 2016 2.58
February 2016 2.50
March 2016 2.44
April 2016 2.19
May 2016 2.09
June 2016 1.94
July 2016 2.06
August 2016 2.03
September 2016 1.75
October 2016 1.79
November 2016 1.79
December 2016 1.87
January 2017 2.18
February 2017 2.44
March 2017 2.38
April 2017 2.27
May 2017 2.32
June 2017 2.16
July 2017 2.12
August 2017 2.06
September 2017 2.12
October 2017 2.13
November 2017 2.07
December 2017 2.16
January 2018 2.13
February 2018 2.04
March 2018 2.11
April 2018 2.31
May 2018 2.39
June 2018 2.43
July 2018 2.63
August 2018 2.57
September 2018 2.44
October 2018 2.42
November 2018 2.48
December 2018 2.57
January 2019 2.45

Also, if you look at the most recent launch of the SSB, its 10-year interest rate returns are lower than the previous month’s. However, if you look at its 1-year interest rate returns 2.01% p.a, it is higher than the 1.89% offered on December’s issue.

In general, the SSB offers superior liquidity, allowing investors to redeem it at any point.  This usually means that the SSB should pay out similar, but slightly lower, interest rates than other government securities that do not offer this liquidity benefit.

Read Also: Complete Guide To Buying The Singapore Savings Bond

#4 Fixed Deposits

Although not commonly referred to as an investment, fixed deposits offer us a way to earn better returns on our money than leaving it in a savings account or under our pillows. As reference, we look at the three local banks in Singapore to check the rates they are currently offering on fixed deposits.

Bank/ Tenor 12 months p.a. (%) 24 months p.a. (%) 36 months p.a. (%)
DBS 0.95 1.2 1.3

 

Bank/ Tenor 12 months p.a. (%) 24 months p.a. (%) 36 months p.a. (%)
UOB 0.4 0.9 1.0

 

 

Bank/ Tenor 12 months p.a. (%) 24 months p.a. (%) 36 months p.a. (%)
OCBC 0.25 0.55 0.9

 

Of course, there are many other banks offering their own fixed deposit schemes as well as promotional rates which can be significantly better than the board rates. Many of them, including the three above, may come with certain conditions you have to fulfil to achieve the promotional rates.

In addition, deposits with all full banks and finance companies in Singapore are covered under the Deposit Insurance Scheme, insuring up to $50,000 of your deposits in each account. All full banks and finance companies in Singapore, a total of 37 are listed on the website, are members of the Deposit Insurance Scheme.

Read Also: Beginners’ Guide To Fixed Deposits In Singapore

#5 CPF Top-Ups

To earn a better interest on your funds, you can also consider making CPF top-ups into your Special Account (SA). These funds will be guaranteed by the Singapore government and offer a guaranteed return of a minimum of 4.0% p.a.

You should also note that the first $60,000 of your CPF monies, with up to $20,000 in your CPF Ordinary Account (OA), will earn an additional 1.0% in interest returns. This means your top-ups may earn up to 5.0% p.a. if you top-up your CPF SA in the early years.

You can receive up to $7,000 in tax reliefs when you make cash top-ups into your CPF SA, as well as an additional $7,000 in tax reliefs when you make cash-ups into a loved one’s CPF SA.

However, before you do this, you need to know that unlike the above investments, which can be sold or redeemed early (notwithstanding that you’ll likely lose some value when you do this), topping up your CPF SA is irreversible. You will only receive it once you hit 65 and start withdrawing monthly payouts under the CPF LIFE annuity scheme.

Read Also: [Beginners’ Guide] Understanding CPF LIFE And Your Monthly Payouts When You Retire In Singapore

#6 Savings Plans

Savings plans, offered by insurance companies, especially those that are non-participating in nature, are able to guarantee your capital as well as returns. You should also note that savings plans that guarantees your capital but do not guarantee returns also exist.

Read Also: Buying A Whole Life Participating Policy For Investment Returns? Here’s What You Need To Understand About The Benefit Illustration

When investing in a saving plans, you are typically required to lock your money over a fixed period of time or continue contributing over a fixed period of time. Not doing so may see you losing a substantial amount of the returns you expected to receive, if you are unsure about your liquidity needs for the funds you are investing.

These plans are also covered by the Singapore Deposit Insurance Scheme (SDIC) in Singapore and may also offer an insurance component that pays out in the event something unfortunate happens to you.

Moving On To Investment With Greater Risks

Once you’ve built a foundation to take care of your basic retirement needs, you will have more courage to make riskier investments. Riskier investments, such as stocks, properties and other alternative investments such as cryptocurrencies or even wine may be able to deliver significantly higher returns.

This does not mean you stop being prudent with your investments. In fact, quite the contrary, as you need to be even more prudent when you’re embarking on riskier investments. Many of these riskier investments are volatile and require you to be able to stomach, and ride out, wild price swings at times to earn good returns over the long term.

Read Also: Step-By-Step Guide to Stock Investing in Singapore

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