This article was first published on 15 October 2018 and has been updated with latest information.
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 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). It was first offered to individuals, above 18 years, in October 2015.
While we can choose to withdraw our investments at any time and without penalties, the Singapore Savings Bonds have a maximum term of 10 years. Redemptions have to be made in multiples of $500 and a $2 transaction fee will be charged. Redemptions will be credited into our account on the 2nd business day of the following month. We still receive a pro-rated interest for any withdrawals we make.
If no redemptions are made, the principal and last interest payment will be automatically credited to our bank account that is linked to our CDP account.
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 June 2020 SSB 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 the longer we remain invested. This is the “step-up” interest rate feature.
For this particular issue, if we hold the Singapore Savings Bond for the full 10-year period, we will receive an interest return of 1.05%.
The Singapore Savings Bonds have a minimum investment amount of $500 and a maximum saving amount of $200,000. 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 $200,000, across the entire Singapore Savings Bonds programme.
The Singapore Savings Bonds pay out interest rates every six months. These interest payments are tax-free.
Singapore Savings Bonds Returns Have Been Dropping In Recent Months
The Singapore Savings bonds have had 57 issues since October 2015.In the initial months years, its interest returns have hovered around the 2.5%-mark – which is what the CPF Ordinary Account (OA) pays.
It then dropped to around 2.0% and even close to 1.7% in early 2016. Interest rates gradually recovered, hitting 2.0%, 2.6% in 2017 and 2018.
However, from 2019 onwards, interest rates offered have been on the downtrend – and hit the lowest point in the latest June issue – 1.05% per annum over 10 years.
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.
#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 Invest Your Supplementary Retirement Scheme In SSBs
In December 2018, the MAS announced that we can invest in the Singapore Savings Bonds using our Supplementary Retirement Scheme (SRS). This is one great way to use the Singapore Savings Bonds, even if it provides a modest interest return.
The reason is that we can gain a dollar-for-dollar tax relief for every dollar we contribute into our SRS. Furthermore, if we do not invest our SRS funds, we only receive a nominal interest rate of 0.05%. To earn a better interest return but keep liquidity and take a very low amount of risk, we can invest our SRS funds in SSBs.
Four Cons To Consider
#1 Relatively Low Interest Returns
Even if we invest for the full duration of 10 years, we stand to receive a return of 1.05% per annum. This is less than the return we can get on certain high interest savings accounts, topping up our CPF accounts or even staying invested in the markets over a long time-horizon.
#2 Higher Interest Rates Come At The Tail-End
As we can see from the table above, we earn an average interest return of only 0.57% in year 1 and 2,. It is only when we get to the end of the 10-year period where we see our average return become 1.05% in year 10.
#3 Bond Issues Give Different Interest Rates Every Month
The June 2020 issue is paying out 1.05% over a 10-year period. This is down from May 2020, which paid 1.39%, and April 2020, which paid 1.63%.
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 January 2020 SSB pays the highest returns, and each subsequent issue has offered a lower interest return. However, based on the 2-year returns, the February 2020 issue is the best, with April 2020 not too far off as well.
This means we have to understand our investment horizon as well.
#4 There Is A Cap On How Much We Can Invest: $200,000
There is a limit of $200,000 that we can invest in the Singapore Savings Bonds. While rare, it is possible you might not get your full requested allotment depending on the demand during each particular tranche.
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 CDP 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 the June 2020 SSB, we can only apply from 6pm on 4th May to 9pm on 26th May 2020.
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.
If we want to invest our SRS funds, we can do so via the internet banking portal of our SRS operator.
Step 3: Check For Your Singapore Savings Bonds Allotment
On the 3rd last business day of the month (27 May for our June 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. For the June 2020 SSB, $150 million worth of Singapore Savings Bonds is available. If people apply for more than $150 million worth of Singapore Savings Bonds, not everyone 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 month (1 June 2020 for the June 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.
For the June 2020 SSB, the first interest payment date will be on 1 December 2020, and subsequent payments will be every six months on 1 June and 1 December.
Consider investing in different issues to smoothen 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.
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