Singapore Savings Bonds

There are a few attractive points about the Singapore Savings Bonds (SSB):

  • fully backed by the Singapore government; AAA credit rating from international credit rating agencies;
  • interest rates changes would not affect the bonds’ value. Capital is guaranteed;
  • minimum investment sum kept very low, only $500;
  • flexibility: no penalties forS redemption of bonds in any given month; no need to decide on how long you want to hold the bonds.
  • the longer you hold the bonds (maximum 10 years), the higher the returns;

From the above, I could see very low risk for holding SSB. That also explains the low coupon rates they are paying for the bond holders.

Investment sum is in the multiples of 500. Do note that you need to have a bank account with any of the three local banks, as well as a CDP securities account. These two account would have to be linked. Interest payments are made every six months, and would increase every year. The interest is paid to the bank account linked to the CDP account.

Both the purchase and redemption of the bonds could be done through ATMs. Note also that there is a $2 transaction fee for each purchase and each redemption. Yes, before you could earn any interest, $2 is already gone.

How would I make use of this tool?

I could think of the below scenarios:

  1. Recommend to retirees who could not afford to take high investment risks;
  2. Park emergency cash and cash waiting to be invested in other asset classes such as stocks and corporate bonds;
  3. Use as a savings account to save for a long trip, overseas studies, wedding, deposit for a property etc.
  4. Used to diversify an investment portfolio.

However, I am wondering if fixed deposits or savings accounts such as OCBC 360, BOC Smartsaver, or CIMB Fastsaver could do the above better?

Let’s do the math and consider different scenarios:
(accurate as at 24 Sept 2016)

Scenario 1:
Capital of $25k
Investment period: 12 months

Min Sum (SGD) Interest rate (%) Actual return based on $25k (SGD)
SSB Oct 2016 500 0.84 210
OCBC 360(hitting all 3 conditions) 3000 2.25 562.5
BOC Smartsaver(hitting all 3 conditions) 1500 3.5 875
CIMB FastSaver 1000 1 250
OCBC 20k 1 250
DBS 20k 0.35 87.5
UOB* 20k 1.25 312.5
Maybank 25k 1.35 337.5
CIMB** 20k 1.35 337.5
Standard Chartered 20k 0.4 100
Citibank 10k 0.1 25
Bank of China 20k 0.6 150
Hong Leong Finance 500 0.45 112.5

*Promotion is for 13-mth term.
**Promotion is for 6-mth term.

It is obvious that OCBC 360 and BOC SmartSaver would yield the best results; they also offer flexibility to withdraw the funds with no penalties as well. However if one is unable to fulfill the three conditions required to earn the interest, then SSB is really not a bad option when compared to the fixed deposit’s returns. Only OCBC, UOB, Maybank, and CIMB could offer better, but does not offer the flexibility of SSB to redeem without penalties. However, CIMB FastSaver actually offers more interest for the similar flexibility, without the $4 application and redemption fees as well.?

How about a longer term?

Scenario 2:
Capital of $25k
Investment period: 36 months

Min Sum (SGD) Interest rate (%) Actual return based on $25k (SGD)
SSB Oct 2016 500 1 753
OCBC 360
(hitting all 3 conditions)
3000 2.25 1725.75
BOC Smartsaver
(hitting all 3 conditions)
1500 3.5 2717.95
CIMB FastSaver 1000 1 757.53
OCBC 20k 0.65 490.68
DBS 20k 1.1 834.11
UOB 20k 0.65 490.68
Maybank 25k 1.8 1374.45
CIMB 20k Not available Not available
Standard Chartered 20k 0.42 316.32
Citibank 10k 0.1 75.08
Bank of China 20k 0.725 547.7
Hong Leong Finance 500 0.7 528.68

With a longer time, the SSB is performing almost on par with CIMB FastSaver, but still pales in contrast with OCBC 360 and BOC SmartSaver. As for fixed deposits, only Maybank and DBS could beat SSB.

I conclude that SSB is good for long term savings (e.g. kids’ education funds), but fixed deposits might actually fare better if you have a clear idea when you need to use the funds, especially in the time frame of 1-3 years. If you are concerned about flexibility, SSB and CIMB FastSaver should be considered instead. Finally, SSB only requires 500 bucks as the initial outlay, as compared to the $20k required by the fixed deposits.

Do note that the SSB website offers an interest calculator which is very user friendly.

Below is the screenshot of the latest bond issue:

ssbpic1

Hope the above helps. One observation is that the banks’ fixed deposits’ interest rates have been dropping! You can compare with my earlier post on fixed deposits.

For more articles like this, go to blog Financial Freedom Gal.

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