This article was first published on 15 October 2018 and has been updated with the latest information on the Singapore Savings Bonds (SSBs) in 2021.
The Singapore Savings Bonds (SSB) may not be the sexiest investment for growing our wealth. However, the popularity of the Singapore Savings Bonds has increased since it was first issued in 2015, and today, many have come to see it as a part of our investment portfolio.
What Are Singapore Savings Bonds?
The Singapore Savings Bonds are bonds that are issued every month by the Singapore government via the Monetary Authority of Singapore (MAS). It was first offered to investors in October 2015. The SSBs have a maximum term of 10 years, 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. A $2 transaction fee will be charged for each 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.
We will receive our 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 that 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 in. For example, in the April 2021 SSB issue, individuals need to apply by 26 March 2021 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
As we can see, the interest rates go up each year we remain invested. This is the “step-up” interest rate feature. For this particular issue, if we hold the Singapore Savings Bonds for its full 10-year period, we will receive an annual interest return of 1.15%.
Singapore Savings Bonds Returns Have Been Dropping In Recent Months
In the initial months of the first SSB issue (in October 2015), its interest returns 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, close to the 2.5% and 2.6% range in 2017 and 2018 respectively. However, from 2019 onwards, interest rates offered have been on the downtrend – and hit the lowest point in Jul 2020 – offering 0.80% per annum over 10 years.
The interest rates subsequently recovered to the 0.9% range and hovered there until the latest April 2021 issue – where interest rates have rebounded to the highest point (1.15% per annum) in close to a year.
Why Should People Consider Investing In The Singapore Savings Bonds?
There are a few compelling reasons to invest in the SSBs, despite its relatively meagre interest returns:
#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 other than a $2 redemption fee. 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). 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.
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 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 investment $100,000 or even $250,000 in them. Even for other Singapore Government Securities, we still need to invest from $1,000. The latest Astrea VI PE Bonds, which is also subject to market volatility, requires a minimum investment amount of $2,000 during its IPO phase.
#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 1.15% 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 0.35% 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 1.15% in year 10.
#3 Bond Issues Give Different Interest Rates Every Month
The April 2021 issue is paying out 1.15% over a 10-year period. This is up from March 2021, which paid 0.97%, and February 2021, which paid 0.89%. If we had invested in those SSB issues, we would be slightly worse off.
#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 also 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 April 2021 SSB, we can only apply from 6pm on 1st March to 9pm on 26th March 2021.
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 (29 March for our April 2021 issue example), MAS will allocate 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 April 2021 SSB, $100 million worth of Singapore Savings Bonds is available. If people apply for more than $100 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 April 2021 for the April 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 April 2021 SSB, the first interest payment date will be on 1 October 2021, and subsequent payments will be every six months on 1 April and 1 October.
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.
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