The Singapore Savings Bonds (SSB) may not sound like the sexiest investment for growing our wealth. However, the popularity of the SSBs has increased since they were first issued in 2015. Today, against the backdrop of a higher interest rate environment, many of us have come to see it as a part of our investment portfolio or are thinking of investing in it.
What Are Singapore Savings Bonds?
The Singapore Savings Bonds (SSBs) are issued every month by the Singapore government via the Monetary Authority of Singapore (MAS). It was first offered to retail investors in October 2015. The SSBs have a maximum tenor of 10 years, usually paying incremental interest returns over the years to reward investors who hold it for a longer period. Both locals and foreigners can invest in the SSBs.
We have to invest in multiples of $500 when buying the SSBs, and can purchase up to a maximum investment limit of $200,000 worth of SSBs. We have to pay a $2 transaction fee for each SSB application. Similarly, when we divest our SSBs, we also need to withdraw in multiples of $500. When we redeem our SSBs, the proceeds 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. We can redeem our SSB investments at any time without any penalties, save for a $2 redemption fee each time.
SSBs pay interest returns every six months, on the first business day of the month. If no redemptions are made, the principal and last interest payment will be automatically credited to our bank account, which is linked to our CDP account, after the 10-year maturity period. The interest payments we receive from the SSBs are tax-free.
Within 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 bond. For example, in the August 2023 issuance, individuals have to apply by 26 July 2023, 9pm and its annual returns look 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
Interest rates tend rise the longer we remain invested. Recently, this effect has been muted due to the current interest rates environment, i.e. an inverted yield curve. As we can see in the example above, the latest August 2023 SSBs are paying a flat return of 2.97% per annum for the first 7 years, and step-up to 3.02% in the 8th year and 3.04% in the 9th and 10th year. Throughout its 10-year tenor, the average return is 2.99%.
Singapore Savings Bonds Returns Reflect The Interest Rate Environment
In the initial few months after the first SSB was issued (in October 2015), the average 10-year interest returns hovered around the 2.5%-mark, which is what our CPF Ordinary Account (OA) also paid as a floor rate.
In the subsequent year, the 10-year rate dropped to under 2.0%, reaching a low of 1.75% in September 2016. From there, interest rates gradually recovered to the 2.5% and 2.6% range in 2017 and 2018 respectively. However, from 2019 to 2021, the average 10-year interest rate trended lower and hit the lowest point in July 2020 – offering a mere 0.80% per annum.
In 2022, due to rising inflation beyond the target level, the US central bank (the Fed) began to reverse its monetary policy by raising interest rates. The SSB has also started to reflect the general interest rate environment, with both short-term (1st-year) and long-term (10-year average returns) rates having risen to an all-time high of 3.26% and 3.47%, respectively for the December 2022 issuance. Since then, the rates have ticked downwards slightly.
The most recent August 2023 SSB issue is offering 2.99% for its 10-year average returns. This is likely due to the slowdown of interest rate hikes by the Fed in response to several banks in the US collapsing.
Why Should People Consider Investing In The Singapore Savings Bonds?
Even though SSBs tend to generate lower returns than stocks in the long term, there are still a few good reasons to invest in them:
#1 Risk-Free Investment
Backed by the government of Singapore, which has been accorded a 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 Diversification For 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 as bonds, we are able to retain a high level of liquidity by being able to withdraw our investments at any time, with no penalties other than a $2 redemption fee. This gives us the ability to earn higher interest rates on our emergency funds and also any savings we are not sure when we will need to use (for wedding, renovation, holiday… etc). We can do this without losing much liquidity as the SSBs can be redeemed within one month and without risk of losing any of its value due to market movements in interest rates.
An added perk is that we can always withdraw these funds whenever we see a higher interest rate being paid on subsequent SSB issues, or if we spot an opportunity in the financial markets.
The same cannot be said of most bonds, even other Singapore Government Securities, which are traded at market value (which can move higher or lower) if we need to withdraw from our investments early. These can be significantly different from our principal sum, especially in a low-interest rate environment with unpredictable longer-term interest rate movements.
#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 invest $100,000 or even $250,000 in them. Even for other Singapore Government Securities, we still need to invest from $1,000. Many retail bond products also tend to require slightly higher investments of $1,000 or $2,000 and above.
#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.
We can also view your Savings Bonds portfolio on a single dashboard by logging in with your Singpass from the Singapore Savings Bond website. This allows us to know how much we have invested and keep track of our interest payments.
#6 Invest Your Supplementary Retirement Scheme (SRS) In SSBs
Since December 2018, 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, especially if we are risk-averse investors.
The reason is that we can gain dollar-for-dollar tax relief for every dollar we contribute (up to $15,300 per year) to 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.
4 Cons To Consider When Investing In SSB
#1 Lower Interest Returns
Even if we invest in the August 2023 issuance for the full duration of 10 years, we stand to receive an average return of 2.99% per annum. This is less than the return that we can get on certain other types of investments, including T-bills or the Astrea private equity bond series, which is available on the Singapore Exchange. Of course, we need to understand the timeline and risks involved in different investments too.
#2 Higher Interest Rates Come At The Tail-End
Due to the interest rate step-up feature, we tend to only get higher interest rates only at the tail-end of the 10-year SSB tenor.
#3 Bond Issues Give Different Interest Rates Every Month
The current August 2023 SSB pays 2.99% on average. The July, June 2023 and May 2023 issuance paid out an average interest rate of 2.82%, 2.81%, and 3.07% over its 10-year tenor. This is lower than the 10-year average interest rate of 3.15% that the April 2023 SSB issuance pays.
As mentioned, we can always redeem our SSB investments if it makes sense (at a $2 fee) to invest in newer SSB issues if they are paying a better overall interest rate.
#4 $200,000 Cap On Our SSB Investments
There is a limit of $200,000 that we can invest in the Singapore Savings Bonds.
At the same time, it is also possible we might not get our full requested allotment depending on the demand during each particular tranche. This has been more relevant as interest rates have hiked to nearly the 4%-mark in recent tranches.
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.
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, MAS will allocate new Singapore Savings Bonds to those who successfully applied.
We may also receive a lower allotment of the Singapore Saving Bonds than what we have applied for if there is an oversubscription. For example, in the May 2023 SSB, a total of $700 million worth of Singapore Savings Bonds was available. However, the total amount applied was over $705 million. We may not get our full applied amount.
In other instances, where the amount applied has been much higher, there may also be a quantity cap. For example, in the December 2022 SSB, a total of $1 billion of Singapore Savings Bonds was available. The amount applied was over 70% higher at $1.7 billion. Those who applied for any allocation amount of the December 2022 issuance (issue code: GX22120S) would have seen their quantity limited to $14,000 and not received what they applied for given the oversubscription.
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. We will be 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 by 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 July 2023 SSB, the first interest payment date will be on 1 January 2023, and subsequent payments will be every six months on 1 July and 1 January.
We can 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 monthly expenses.
This article was first published on 15 October 2018 and has been updated with the latest information on the Singapore Savings Bonds (SSBs).
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