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Should Singapore Savings Bonds Be Part Of your portfolio?

Should you be adding Singapore Savings Bonds to your portfolio?

Recently, a number of our friends have been asking us about the new Singapore Savings Bonds (“SSB”) distributed by the government. In case you aren’t aware, the Monetary Authority of Singapore (MAS) has announced that this bond will be issued in 1st Oct this year with applications for it having started from 1st to 25th September.

In this article, we take a closer look at the various components encompassing this new government bond and what it essentially means to the retail investor.

Understanding the Singapore Savings Bonds 

Many people may have heard or read about the comprehensive benefits of this new bond. In fact, all the information required can also be obtained from the website here or the factsheet here. We highlight the more important points potential investors should know about.

  • Principal and interest payments guaranteed: Backed by the “AAA” credit rating of the Singapore government, the SSB is as risk-free as it comes.
  • Step-up interest: You can invest for up to 10 years and earn interest that increases over time pegged to the Singapore Government Securities. The longer you hold your bond, the higher your return as shown below. Someone with a 5-year investment horizon can roughly estimate an average interest rate of 2%.

Screen Shot 2015-09-11 at 12.59.59 amSourced from MAS website

  • No penalty for early redemption: This is actually the most crucial aspect that sets this instrument apart from other fixed deposits or insurance policies. Since there is no penalty for early redemption, people will be more willing to put in a bigger portion of their savings without the risk of having their money being locked up.
  • Low barrier of entry: With the minimum investment amount starting from S$500, most Singaporeans would be able to invest into it.

Our Take on SSB

Should people be getting SSB as part of their portfolio?

Our answer to that question is that it mainly depends on each person’s expectations and risk appetite.

For someone looking at fixed deposits, SSB will win hands down with the higher interest rates offered over the long run. On top of that, the flexible commitment it offers is an advantage over other types of fixed deposits which cannot be found elsewhere. A quick check on the various banks’ websites indicates that they offer at most 2% interest rate with multiple terms and conditions embedded.

On the other hand, the returns will pale in comparison to higher-risks financial instruments such as corporate bonds (i.e. the recently launched Aspial bonds) or even Real Estate Investment Trusts (“REITS”). This is to be expected, since corporate bonds or REITS are by nature higher risk instruments. That being said, an investor can also aim for wider diversification by allocating SSB to his portfolio.

From a personal finance standpoint, the SSB would tend to be more suitable for families with many different financial obligations.

It makes a lot of sense to utilize the SSB as a rainy day fund in comparison to a normal bank savings account to earn stable interest returns with the option to pull out the funds during an abrupt emergency.

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