The Singapore Savings Bond, issued by the Singapore Government, is one of the Singapore Government securities tailored-made for individual investors like you and me. You can rest worried free of its quality because the Singapore Government guarantees to repay the principal and interest. Furthermore, you can begin investing by an amount as small as S$500.
You can use it as your alternative to a savings account because you can sell the bonds anytime with no penalty. Moreover, it offers up to 1.64% interest per year if you save for ten years. The Singapore Savings Bond can be a part of your emergency fund because it is a safe and flexible option and a part of your risk-diversifying investment portfolio.
What are Singapore Savings Bonds?
The Key Features:
- The longer you save, the more interest you get. The bond pays “step-up” interest. That means the interest rates increase by the time you hold the bond.
- Highly liquid: You sell the bond whenever you need the cash. You have no obligations to hold the bond until it expires. More than that, if you sell the savings bond this month, you can get the proceeds with the accrued interest next month.
- Low initial investment amount: A low amount of S$500 is what you can invest in the Singapore Savings Bond. Any additional investments are in multiples of S$500 each. Yet you should beware the maximum investment for a savings bond investor is S$200,000.
- You can now purchase the bond in cash through an ATM(the Automatic Teller Machine) and SRS(the Singapore Retirement System). You have easy access and convenience in buying bonds.
What Is the Expected Return of the Singapore Savings Bond(SSB)?
A table covering interest rates of current savings bonds in effect tells all the information you need to know below:
|Bond codes||Annual compounded returns for a 10-year holding period||Maturity dates||Issue dates|
|GX21070X||1.53%||1 July 2031||1 July 2021|
|GX21080A||1.60%||1 August 2031||2 August 2021|
|GX21090S||1.43%||1 September 2031||1 September 2021|
|GX21100W||1.39%||1 October 2031||1 October 2021|
|GX21110E||1.45%||1 November 2031||1 November 2021|
|GX21120H||1.71%||1 December 2031||1 December 2021|
|GX22010S||1.78%||1 January 2032||3 January 2022|
|GX22020W||1.64%||1 February 2032||03 February 2022|
The bond’s average interest rates for the last 8 months range from 1.43% to 1.71%. It performs better than a typical bank savings account does. However, the bond’s return is lower than most money market funds’ performance by Robo advisors.
The Benefits and Risks of Investing in the Singapore Savings Bonds(SSBs)
- Default-free investment: The bond issuer is the Singapore Government, rated AAA by Standard & Poor’s, which has a solid financial capability of repaying your money with entire principal and accrued interest. Therefore, you should think the Singapore Government’s bankruptcy risk is minimal compared to other small countries.
- Portfolio diversification: You may need low-risk investment to hedge against market volatility. If your investment portfolio comprises stocks and commodities, the savings bond can play a part as a cushion against abrupt market changes.
- Emergency fund: The bond may be a part of a reserve for unforeseen and urgent circumstances. You can sell the savings bond anytime without a penalty.
- Small investment amount: The initial and subsequent amounts for investing in the bond are in multiples of S$500 only. It is open to small and regular investors.
- Inflation risk: Singapore has undergone an average of 0.47% over the past ten years, from 2011 to 2021. The bond has returned 1.46% over the same period. It barely beats domestic inflation but cannot deliver much real growth.
- Investment limitations: An investor cannot purchase more than S$200,000 of the Singapore Savings Bond. If an oversubscription exists, the MAS(the Monetary Authority of Singapore) may return the excess. He may lose an investment opportunity.
- Opportunity cost: You may give up an investment opportunity over a low-return bond. If you can put up with some risks but buy the savings bond instead, you may regret letting go of some options by putting your money in a better place, like stocks instead.
Who Should Invest in SSBs?
The Singapore Government issues the bond for 3 types of investors: If you prefer a low risk and safe investment, An SSB, issued and guaranteed by the Singapore Government, saves you default risk and provides you steady income streams for up to 10 years. Secondly, small and budget investors may prefer regular investments as new bond issuances are available every month, and they are in multiples of S$500 only.
Third, if you think the bank savings account yields too little and a money market fund is risky, the savings bond is your option. You can buy and sell on the web and the app and purchase the bond using cash through an ATM and your SRS(the Singapore Retirement System).
How to Start Investing in SSBs
To buy Singapore savings bonds, you should note:
- You are 18 of age or above, whether you are a Singapore citizen, permanent resident, or even a foreign national.
- You must have an account with one of the banks: DBS, POSH, OCBC, and UOB and a CDP account with the Singapore Stock Exchange(SGX) for processing, collecting and storing your assets, e.g., interest, bonds. Once you approve your CDP application, you should next activate the “Direct Crediting Services” function to process the SSB buying process.
- If you plan to invest through SRS, you should contact the SRS operator’s bank for an SRS account. An SRS operator is the custodian of SSBs.
- You can now use the ATMs, personal internet banking, or OCBC mobile app to buy bonds for cash applications. For SRS applications, you only use internet banking to buy SSBs.
- The minimum investment amount is S$500, and subsequent investments are multiples of S$500 each. The maximum bonds you can hold are S$200,000 at most.
- The issuing agent, the Monetary Authority of Singapore, handles the sale of the savings bonds every month. You have to pay S$2 for every transaction.
4 Steps to Investing in SSBs
- Open an account with one of the designated banks mentioned above for cash and SRS applications for SSB investing. Cash bond investors should create a CDP account besides linking up with a bank account.
- For cash application: You can buy bonds through ATMs or personal internet banking.
For SRS application: The SRS operator will lock up or earmark your funds for investment and buy the bonds. You pay a S$2 fee per transaction.
- Check the results: MAS issues the bonds on the 1st business day after the application month. Furthermore, it distributes the bonds and publishes the results on the 3rd day.
If you buy using cash, the CDP will inform you by email. The SRS operator will email you the result if you purchase through SRS. You can also check the “My Savings Bonds” portal from the website for the latest results.
- Receive bond interest: The Singapore savings bond pays every 6 months on the 1st day of a payment month. You receive the bond interest payment in your bank or SRS bank account.
How can I Maximize my Investment Returns?
Besides the bond interests, you can use two techniques to enhance the returns from investing in savings bonds.
- Cost of dollar averaging: Under the increasing rate environment, you may stack up the investments by buying additional issues each month in the same amount and increasing returns from investing in bonds of various interest rates.
- As stipulated, the holding term is longer; the return is higher. You get the most interest payments from holding the bond the longest. The maximum bond term is 10 years.
You can increase the returns through the low-risk techniques above.
How to Redeem My Investments
Like other bond redemptions, you can redeem the Singapore Savings Bonds you hold under the following 2 situations:
- Bond maturity: the MAS will credit your bank account with the direct crediting service or SRS account with principal and interests.
- Early redemption: You submit your requests for early redemption through an ATM or internet banking and the SRS operator’s internet banking portal(for SRS applicants). A transaction fee of S$2 will apply to your account. The MAS will credit your account with the principal and accrued interests.
What are the Differences between Fixed Deposits and Singapore Savings Bonds?
The following table illustrates the main differences between the two:
|Singapore savings bonds||Bank fixed deposits|
|Minimum investment/deposit amount||S$500||S$1,000|
|Maximum investment/deposit amount||S$200,000||No limit|
|Tenure||3 to 36 months||Up to 10 years|
|Early withdrawals||Anytime with accrued interests||No interest and penalty may be applicable.|
Both Singapore Savings Bonds and bank fixed deposits are similar in many ways. However, you should consider the contrasts among the horizons and early withdrawal charges besides interest returns before choosing one fit for you.
What is the “book-entry” Singapore Government Security? Is the Singapore Savings Bond(SSB) the “book-entry” security?
Yes, the SSB belongs to the “book-entry” security. It means the debtor doesn’t issue an individual certificate but only a global one to a custodian.
Can an SSB be transferable?
An investor cannot transfer an SSB. But under certain circumstances, the MAS(the Monetary Authority of Singapore) allows the transfer if
- A bondholder dies.
- A bondholder transfers SSBs from one CDP or SRS account to another under his name.
- A bondholder transfers SSBs from the CDP account to the SRS account or vice versa.
SSB transfer or pledge without the MAS’s approval may risk forced redemption.
How the MAS Distributes Newly Issued SSBs in case of Oversubscription
MAS issues SSBs every month. Sometimes SSBs to be issued are more than investors’ demands. The MAS uses the “Quantity Ceiling Format” to distribute the bonds to subscribers. The method aims to fulfill as many investor demands as possible.
- The MAS divides the bond allocation into several rounds according to individual investors’ restrictions for maximum subscriptions. The allocation quota is in one denomination of S$500.
- In the initial rounds, the total number of investors gets denominations evenly until the MAS cannot distribute the remaining bonds equally among subscribers. The MAS then will allocate the remaining bonds to unfulfilled investors at random until filling up all remaining quotas.
- The purpose is to maximize all subscribers on board. As a result, investors with small amounts are more likely to participate in SSB investments.
What is a “step-up” interest from the Singapore Savings Bond?
The “step-up” interest from SSBs encourages bondholders to hold long or full terms for the bond to maximize the highest interests. Thus, the Singapore Government makes a mechanism making long-term bondholders benefit the most from interest rate payments.
You may doubt SSBs’ long-term rising yields as the bonds link to Singapore Government Securities(SGS). The SGS yields are not constantly rising in the long term.
To eliminate the drawback, the MAS will lower the early yields and increase later years’ yields, so long-term bondholders benefit more from holding to the fill term. However, the total return will not change if you hold a full term. Therefore, you are wise to keep the SSB investment early to maximize the benefits.
Is the SSB interest taxable?
SSB interests belong to the “Qualifying Debt Securities” in Singapore. The interests accrued from the category are exempt from tax until December 23, 2023, by the Ministry of Finance.
Does the Government use the proceeds from SSBs for any expenditure?
The MAS places the SSB proceeds in the “Government Securities Fund” and only draws the funds for investments or coupon interest and principal payments.
Can I invest in the SSBs on open markets like the Singapore Stock Exchange?
As it is a non-transferable instrument, you cannot trade in an open market except for extreme circumstances like death, CDP/SRS account changes. Moreover, you cannot pledge an SSB as collateral without the MAS’s approval; otherwise, it may force you to redeem, and you may suffer a loss due to it.
What are the risks of investing in Singapore Savings Bonds?
The SSB issuer, the Singapore Government, possesses solid financial capability. You may think the default chance is minimal, but you should also consider other risks involved in investing in bonds. So what are they?
Inflation risk: It is an investor’s challenge regarding bond investment. When the bond fund grows more petite than the inflation, an investor loses the real value of money.
The actual bond value may erode by the rise of inflation. Therefore, you may diversify some within a portfolio into growth assets like stocks to beat inflation.
Interest rate risk: Economists predict the interest rate increase for 2022. Your existing SSB portfolio may lag in interest coupon payments compared with other bond products. To keep up the pace, you may need to change existing SSBs to high-interest ones. On top of that, you may have to pay for the cost. You had better consult a financial advisor before doing it.
Downgrade risk: While Singapore has a AAA grade in finance strength by rating agencies like S&P, it has stable and reliable revenues to support expenditure and investment. However, sudden and abrupt events like the pandemic may affect its financial operations in the future. You shouldn’t ignore it.
Currency risk: The Singapore dollar is the real worth an investor holds and values an SSB, and it may depreciate against other currencies like US dollars. If the Singapore dollar loses against others, the asset may lose a relative value and vice versa.
What is a “Cutoff” amount?
It is an indicator of whether you will invest fully in the SSBs. If your application is equal to or less than the MAS’s “cutoff” amounts, you have your subscription invested. If your subscription is more than that, you may get your subscription equal to the “cutoff” amount or one notch about an additional SSB of S$500. The extra S$500 SSB is a random distribution result or a luck one, you may call.
What is accrued interest?
Accrued interest is a coupon payment at the end of an investment period. Investors get paid by the savings bond and pays interest for the last investment period every 6 months. You can also get a pro-rata interest if you sell an SSB before an investment period. Thus, you cannot miss a single day of interest from the SSB.
The Singapore Savings Bond is your favorite choice for long-term risk-averse investors seeking portfolio diversification and reserve funds.
Below are 4 takeaways for the SSB:
- The longer you hold a Singapore Savings Bond, the more interest you get.
- It diversifies your portfolio risks by enclosing some SSBs.
- You may sell an SSB anytime to the MAS and get pro-rata accrued interest.
- You may use it as your reserve fund.
Investing takes a huge chunk from your savings. In this light, if you have less money to invest for any of these ventures, you can use Raffles Credit’s money lending service to give you a business startup fund or a personal loan that provides just enough cash to help you begin your new investment venture. Visit Raffles Credit or our physical branch to know more about what we can achieve with you.