How safe is the Singapore Savings Bonds (SSB)? And should you apply for it?
Hey, guys! You didn’t come to the wrong website – this is my first finance-related post and I’m dedicating this to one of my Instagram readers. I’d posted an Instagram Story to remind my followers on SSB application deadline. Well, I was surprised and delighted that my readers are also into personal finance, in addition to beauty and travel.
One reader – Miss C – messaged me and asked if I could provide more details. So, here’s my virgin attempt in crafting a finance post. Don’t worry. I know what I’m doing. ;) This is another of my passions in life. I’ll try to explain the Singapore Savings Bonds in layman’s term to make it easy for non-finance trained person to understand.
Tell Me More about The Singapore Savings Bond
The Singapore Savings Bond (SSB) Programme is a fairly new government bond launched just a few years ago. What happens is that every month, a new bond will be issued with a tenure of 10 years. Say if you apply for the upcoming bond (May 2019), you will enjoy 10-year interest rates specific to this bond issue (Bond ID: GX19050A).
May 2019’s interest rates are shown in the table below. The longer you hold the bond, the higher the corresponding interest rate for that year would be.
If you had applied for last month’s bond like I did, you will enjoy a different set of 10-year interest rates, as shown below.
So, as you can see, the 10-year rates would differ from month to month. When SSB was first launched, the interest rates were climbing up steadily, led by the changes in US. For instance, the first year’s interest rate for Jan 2018 issuance was just 1.32%. Subsequent bond issuance reached a peak of over 2% a year later.
Since reaching the peak in Jan 2019, the interest rates have been declining although the drop seems to be stabilizing at the moment. However, do note that the trend will change from time to time depending on economic variables.
Is Singapore Savings Bonds Safe?
I’m not an expert or a certified adviser and hence am not able to give any recommendations here (disclaimer). However, I think it’s okay to share my opinions. :)
I believe the Singapore Savings Bonds is safer than most investment instruments out there. It’s backed by the Singapore government which is known to be very stable and rich. :) We have a good surplus.
When something is safe, the interest rates would naturally be low (or else, everyone would want a piece of it). Therefore, although the Singapore Savings Bonds is safe, it doesn’t mean that it’s the best place to put all your money. You’ll have to factor in inflation rates and also see if there are other ways to allocate your funds for better returns (e.g. REITS, Corporate Bonds, Stocks, mutual funds etc).
So, should you consider Singapore Savings Bonds?
Personally, I treat Singapore Savings Bonds just like how I view short-term fixed deposits, albeit a better version. If I need a certain amount as emergency funds (means it has to be readily available), I would place it in Singapore Savings Bonds.
Early Redemption of SSB Comes with No Penalty
Other than the $2 transaction fee, there is no penalty in early redemption for SSB. You’ll still get the accrued interest (meaning interest you have earned thus far). This is already an advantage as compared to a bank fixed deposit because I believe you may earn lesser or no interest if you withdraw your fixed deposits prematurely.
Less Risky than Corporate Bonds
At any time that you like to redeem your Singapore Savings Bonds, you can get back your full principal, plus accrued interest. This is less risky than corporate bonds.
Say if you have bought a corporate bond at $1 a piece, the value at any time before maturity may differ depending on economic situation. If it’s above $1, then good for you. But it may also drop below $1, which means you will make a loss if you need the fund urgently.
Normally, bond prices may drop under par value (i.e. $1 in this example) if the company is not doing well or has a poorer financial health than when the bond was first issued. For instance, the table below shows the current prices for each bond.
The first bond ‘Hyflux’ is currently suspended as it’s facing some survival issue – investors can’t sell it even if they want to. The second one – Aspial – is under par value right now, probably because it has a higher risk profile (a more leveraged company). The last three are currently trading over par value. So, if you sell them before maturity, you won’t lose any money (but you’ll be forgoing future interests).
Another reason for bond prices to drop is when we are in a rising interest rate environment. Why? Because people rather put the money elsewhere to earn better interest rates. Lower demand leads to lower bond prices.
That’s why, investing in corporate bonds has a higher risk element than SSB. But of course, they make it up by giving a better interest rates (typically 3% to 5% in today’s climate). Anything above, please do your due diligence.
Enjoy Step-up Interest Rates
Another benefit of SSB over fixed deposit is how if you decide not to withdraw your funds, you may enjoy step-up interest rates* in subsequent years.
*There used to be a good step up for previous SSB issuance. In recent months, you may only receive step up in the 4th year. However, do note that such terms will vary from issue to issue depending on economic situations.
Therefore, effectively, you are keeping your money in a place that gives you almost no restrictions and no penalty. You can back out anytime. For instance, I’ve already withdrawn some of my old SSB funds and reinvested them in newer ones (newer ones have higher short-term interest rates). But I did regret a tiny bit because the newer ones also have lower 10-year average return.
Is Singapore Savings Bonds Really that Perfect?
Nothing is perfect in life, including me and you. :)
Say if you need funds tomorrow, you won’t get it by them. When you trigger a redemption, your funds will only be in by the second business day of the following month. So, there may be a maximum waiting period of one month.
Yah, so don’t treat SSB as cash equivalent. It’s a little less fluid. :) That’s why I compare SSB with fixed deposit and not cash.
How do I apply for Singapore Savings Bonds?
As I’ve shared earlier, there will be a new bond every month. You can visit this SSB official page to view the upcoming bond. Take a look at the interest rates and study it against your needs. You may also find yourself comparing it with existing fixed deposit rates offered by banks.
Deadline for SSB Application
Typically, the deadline for application is around 25th of each month. So if you want to catch May 2019’s bond, you’ll have to apply for it before 25th April, 9pm.
What you need to do before applying for SSB
First of all, you’ll need to have a local bank account. I believe all of you have one. So, let’s move on to requirement #2.
You’ll also need a CDP securities account. This is basically an account to “hold” all your stocks, bonds and securities. If you have been investing in stocks or bonds, you would already have a CDP account. If you don’t, you can apply for one at CDP’s website.
How do I Apply for Singapore Savings Bonds?
You can do so either via ATM or through online banking. I prefer the latter as I don’t have to keep people waiting in the queue. And I can make sure no mistake is made as I’ll have more time to read through the details.
In most instance, you’ll go to the “Invest” tab under online banking, and choose Singapore Government Securities. Then, choose the Singapore Savings Bonds option.
Do note that the online application service is only available till 9pm, Mon to Sat and excludes holidays. Here’s the official page that guides you on how to apply for SSB.
How much can I invest?
You can buy up to $200,000 of SSB across all issues. This means you can apply for various months’ bonds and the total cannot exceed $200k.
The minimum investment amount is $500 per application.
Do I have to pay transaction fee?
Yes, you do. However, it’s really negligible. Just $2 per application or redemption.
What if I’ve applied for SSB long time ago, and can’t remember the interest rates?
Don’t worry. You can retrieve the 10-year interest rates here. Just enter the year and month of the bond issuance and you’ll see the 10-year rate tied to that bond almost instantly.
I’m a Foreigner. Can I apply for SSB?
To the 70% of my readers who are global audience, you may wonder if you are able to apply for the Singapore Savings Bonds.
Based on my understanding, you can as long as you are 18 years old and above and have both a local bank and CDP accounts. However, please verify with the official source because things can change anytime.
When will I receive my Interest?
You will receive your SSB interest every 6 months through your bank account.
If you choose to redeem your bonds before maturity date, you will receive the accrued interest and the principal value in the following month.
If you want your spare cash to earn some interest and don’t mind a one-month wait period (between fund redemption and receipt), then the Singapore Savings Bonds may be something worth considering. Since I’m not a finance guru, please do your own research before making any investment decision. :)
Okay, if you have any questions, drop them in the comments field. Happy investing!
To my instagram reader “Miss C”, hope I’ve answered your question. To other readers, feel free to request for contents that you love to read. I’ll do it if I think I can add value.
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