In the year 2015, the Singaporean government launched SSB (Singapore Savings Bonds). Compared to other forms of investment, the investment was initially considered very conservative, giving returns that were very low. With time, however, it has become a decent investment with returns that have been termed surprisingly good, considering that it is a very low risk investment. The bond has gained momentum and was actually oversubscribed early in the year in 2018. In order to keep up with the demand, the bond supply has been raised by S$100 million from S$200 million, bringing it to a whopping S$300 million.
Singapore Savings Bonds: What Are They?
By purchasing a bond, what one does is really lend money to the issuer to be returned at a particular interest rate. The issuer is usually the government or a company. In this case, the Singaporean government is the issuer and investors are in essence lending money to the government. This particular bond has gained a lot of popularity for two main reasons:
- The risk of losing the money invested is practically zero
- The returns are good
By lending the government their money, investors can expect to receive interest on it every six months without fail. Since bonds vary in length, one can either lend money to the government for short periods of time, or for up to 10 years. This is actually the longest bond term and gives the highest returns. Should one choose to withdraw their money before the term is up, there is no penalty whatsoever.
The 2019 Rate Of Returns And What One Can Hope To Earn
The government has given information on the interest to be earned on their website. The numbers provided are the average return and the interest rate per year. The interest rate tends to get higher year by year. Should one choose to invest S$10,000, the numbers would look as follows (the numbers are based on the rates in June 2019):
10 years: The Average interest each year would be 2.48% and the total interest earned would be S$2,361.
9 years: Average interest would be 2.41% totaling S$2,061.
8 Years: Average interest would be 2.32% with a total earning of S$1,777.
7 years: Average interest would be 2.24% earning a total of S$1,510.
6 years: Average interest would be 2.15% and one would earn S$1,258.
5 years: Average interest would be 2.13% earning S$1,021.
4 years: Average interest would be 2.03% earning an interest of S$791 in total.
3 years: The average interest would be 1.88% and the total earned would be S$576.
2 years: The average interest would be 1.88% and the amount earned would be S$380.
1 year: The average interest would be 1.88% with the earnings totaling S$188.
In the event that one withdraws their money after 2 years, the returns will be 1.88% plus 1.88%, divided by two. This will bring the interest rate to be averaged out at 1.88% for both years.
One may think that these rates are low. However, when the bond was first issued in 2015, the interest rate for one year was only 0.96%. The 2019 interest rates are therefore quite good and even short-term investments can still yield well for the investor. Coupled with the fact that bonds are very low risk, this makes it an ideal investment for most.
Compared to other savings options considered to be pretty low risk, Singapore Savings Bond fares very well. Consider that one managed to save S$20,000 and is now looking for a safe place for that money, while earning some interest. People who read about personal finance and are risk averse will be looking for a high interest savings account or a fixed deposit account, but the Savings Bond does much better in terms of interest. If the said amount was to be invested for 2 years, this is what those figures would look like:
- Fixed Deposit Account: The interest rate offered per year is 1.5% and the total amount earned at the end of 2 years, for a S$20,000 investment is S$600.
- High Interest Savings Account: The average interest that one can look forward to is 1.675% yielding a return of S$670 at the end of 2 years.
- Singapore Savings Bond: The average interest rate per year for the first two years comes to 1.91%, and the returns will be S$764.
Pros And Cons Of Singapore Savings Bonds (SSBs)
Like any other investment, there are pros and cons to investing in Singapore Savings Bonds. Here are some of the Pros:
- Good returns: Compared to other long-term, low risk investment vehicles like fixed deposit accounts and High Interest Savings Accounts, SSBs have very good returns.
- Risk Factor: The risk is virtually zero. One is guaranteed that they will get their principal back since the government has a triple A credit rating.
- Taxes: The returns from this investment are free of tax.
- Interest Payments: The interest earned is paid out every 6 months without fail.
- Eligibility: As long as one has attained the age of 18, he or she can invest in the bonds.
- Minimum Amount: The least amount that one can invest is S$500, making it affordable for many.
- Transaction fee: This fee has been kept low at S$2 for every transaction.
- Investment term: The investor can choose how long to invest without fear of penalty. If he or she decides to withdraw from a 10-year bond after 3 years, they will still get their interest rate for the 3 years and no penalty for pulling out.
The cons include the following:
- Interest rates: Even though SSBs come out on top compared to similar investments, other higher risk investments such as CPF, ETFs and REITs can give a higher rate of return.
- Maximum Amount: The most that one can invest is S$ 100,000. Anyone looking for a place to invest more than that must therefore find themselves another investment vehicle.
- Type of interest: This investment does not offer the opportunity to compound the interest. It is simple interest paid out every 6 months.
Buying Singapore Savings Bonds (SSBs)
Purchasing the savings bond is a 3-step process as follows:
1st Step: You will need to have an account with UOB or OCBC or DBS bank, and then go ahead and get a CDP securities account. The steps to follow are given online on the government’s website. Once the application is filled out, print it out and then mail it to the address given along with the necessary supporting documents.
2nd Step: Every month the government releases a new bond. The application period for the same is 3 weeks prior to the bond release. During these 3 weeks, one can use an ATM or iBanking to apply for the savings bond. One must have their CDP account number in order to do this, and know how much they are looking to invest. Once the application is processed, the principle amount as well as the S$2 processing fee are both deducted from the bank account used in the application.
3rd step: Securing the Savings Bond
Once the period of application has closed, one does not get to know if they have secured SSBs until the month ends. In the event that there was an oversubscription, one is given fewer bonds and the excess money is refunded to them the following day.
Since the official issue day is the first business day of each month, a notification by post will come shortly thereafter and interest will begin coming in after six months.
Purchasing SSBs Via Internet Banking
Purchasing SSBs Via ATMs
A Few Things To Note When Applying For SSBs
All individuals who are applying for a CDP account have to be at least 18 years old. The minimum amount required to purchase SSBs is $500 along with subsequent multiples of $500. The maximum amount of money allowed for this investment is $200,000. CPF funds are not allowed to be used to purchase the savings bonds.
To purchase using cash, one can get the bonds at DBS/POSB, UOB or OCBC ATMs, via internet banking or through OCBC’s mobile application. Do take note that a new bond is issued every month. This means that the rates and price are different each time so it may be better to observe the values first before making a purchase.
The application period opens at 6pm on the first business day of the month and closes at 9pm on the 4th last business day of the month. Operating hours are between 7am to 9pm from Mondays to Saturdays, excluding public holidays. There will be a $2 fee for each application that cannot be refunded.