After it was first issued in 2015 to lacklustre interest, the Singapore Savings Bonds (SSB) have come a long way to enjoy due recognition as being a useful part of an investor’s balanced portfolio.
Today, the investing community look forward to interest rates of each month’s newly issued bonds, with articles and discussions on how to get the most out of SSB.
Given the importance of SSB to Singapore investors, let’s examine 7 questions you should know the answers to as you consider whether to invest or not.
#1 What Are The Singapore Savings Bonds (In One Minute)?
Issued by Singapore’s central bank, the Monetary Authority of Singapore (MAS), the Singapore Savings Bonds offer a way to earn superior interest compared to a regular savings account, without losing much liquidity or taking on additional risk.
Your capital and interest is guaranteed by the Singapore Government, which has a AAA-rating. The bonds can be bought in denominations of $500, and can be redeemed as soon as the following month, with no penalty. This means that you will never lose any of your invested capital.
The interest you earn depend on which tranche of bonds you’re holding, and the duration of time you held on to the bonds. SSB pays step-up interest each year, up to the 10th year, which rewards you for holding on to them until maturity.
The bonds are not tradable on the open market, so when you decide to redeem the bonds, you do so with MAS. The government has committed to issuing the Singapore Savings Bonds every month for at least five years after its launch.
#2 How Are The SSB Interest Rates Set?
The interest rates of each tranche of SSB are based on the average Singapore Government Securities (SGS) yields the month before application for that bond opens, with the aim of having the yield of SSB be as close as possible to SGS yields, over the same given duration.
The reference yields can be found on the Daily SGS Prices on the SGS website. To derive the SSB step-up interest rates, the reference yields are interpolated mathematically (using a hermite spline function, if you’re interested).
For a more in-depth discussion (and formulas) on SSB interest rates, you can geek out on this technical explanation by MAS.
#3 Can Foreigners Buy Singapore Savings Bonds? Is There Any Age Limit For Buying SSB?
Even though they are named the Singapore Savings Bonds and were created primarily to give Singaporeans a risk-free fixed income investment option, anyone with a Central Depository (CDP) Account can apply to buy SSBs, including Singaporeans, PRs and foreigners.
To open a CDP account, you need to be at least 18 years old, must not be an undischarged bankrupt, and have a bank account with Citibank, DBS/POSB, HSBC, Maybank, OCBC, Standard Chartered Bank or UOB.
#4 I Already Bought SSB A Few Years Ago With An Interest Rate Lower Than Current SSB Interest Rates. Should I Sell It And Buy The Next SSB Tranche?
As mentioned, new tranches of SSB are issued monthly, each with their respective interest rates. You can refer to the SSB website to see the interest rates for the upcoming issue.
A natural question would be: given that rates today are higher than earlier tranches issued a few years ago, does it make sense to redeem the earlier bonds and buy up the current bonds instead? Especially since there are no penalties or fees for early SSB redemptions.
Anyone considering this course of action should be aware of two considerations.
The first is, given the step-up nature of SSB interest payments, what would your projected SSB yield be if you were to keep your bonds until maturity, thus enjoying higher interest at the tail end of your SSB’s tenure? Compare this to redeeming your bonds today and having to wait for a few years for the attractive yields to kick in.
The second point to consider is due to the popularity of SSB today, you may receive less in SSB than what you have applied for if there is an oversubscription. If you have a large amount of money in SSB, you may take a few months to be fully invested again.
It is also worth noting that you don’t have to choose between holding all your existing SSB or liquidating everything. You can sell a portion of your prior SSB holdings and buy the current tranche. This allows you to smooth out differences in interest returns from different SSB batches.
#5 If I Need To Urgently And Prematurely Redeem My Bonds, How Long Will It Take For The Money To Be Credited?
One of the benefits of SSB is the relatively high level of liquidity. You can redeem your SSB investments at any time, with no penalties. This is in contrast to other bonds or fixed deposits, where you could stand to lose a significant chunk of your money if you urgently need to withdraw your investments early.
To redeem your SSB early, you can submit a redemption request through your respective bank from which you applied for the SSB or in the case of SSB bought using Supplementary Retirement Scheme (SRS) funds, through your SRS provider. There is a $2 transaction fee applied for each redemption request.
There is one redemption window each month: From 6pm on the 1st business day of each month to 9pm on the 4th last business day of the month. The redemption proceeds will be paid by the end of the 2nd business day of the following month.
In other words, depending on when you apply to redeem your SSB, the soonest you can receive your SSB monies is within a week, and the longest would be up to a month.
#6 How And When Do I Receive My SSB Interest Payments?
Every 6 months, you will receive interest payments on your SSBs, paid automatically paid into the bank account linked to your CDP account. An icing on the cake is that these interest payments are tax-free.
#7 What Happens If A Bondholder Passes Away? Can SSB Be willed To Beneficiaries?
SSB can be transferred to surviving beneficiaries in the event of death of the bondholder, in accordance to the deceased person’s will or following the Intestate Act, just like any other stocks or equities held in one’s CDP account.
Note that while there is a limit of $200,000 in SSB that a single person can buy, transfer of SSB because of inheritance is not subject to this limit.
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