All you need to know about Singapore Savings Bond [December 2022]

Introduction

The Singapore Savings Bond (SSB) is a special investment product issued by the Singapore government. It is a type of Singapore government security that allows individuals to save and invest for the long term (10 years).

The SSB is a savings bond that enables individuals to earn interest on their savings, with minimal risk, as the Singapore government fully backs it.

Investors can purchase these bonds from any bank in Singapore or through the Central Depository (CDP).

The SSB offers higher interest rates than other similar investment products (fixed deposited and endowment), making them attractive to those looking for steady returns over time.

Moreover, they provide investors with liquidity and flexibility as they can redeem their bonds anytime after 6 months. Overall, the SSB is an ideal investment option for low-risk investments with steady returns over a longer period of time.

Who is eligible to apply for a Singapore Savings Bond?

Anyone who is a Singapore Citizen or Singapore Permanent Resident at least 18 years old can apply for an SSB (Singapore Savings Bond).

What is the minimum and maximum limit to apply for Singapore Savings Bond?

The minimum investment amount is $500, and the maximum investment limit is $200,000. Any values between $500 and $200,000 must be in the denomination of $500.

This low minimum investment requirement makes it easy for anyone to purchase the bond

What’s the interest rate, and how often is the coupon/ interest payment for the Singapore savings bond?

The 10-year average of the SSB interest rate in December 2022 is: 3.26%

The interest is paid every 6 months directly to your bank’s savings account.

There is an option to accrue interest and receive payment only annually. This will allow you to enjoy higher interest as the interest is compounded.

You can visit the calculator here to find out more!

What’s the duration, and when can I redeem the Singapore Savings Bond?

The full duration of the bond is 10 years. After 10 years, the bond will mature and pays out to the investor.

However, the SSB has an early redemption feature. As an SSB bondholder, you can make partial redemptions anytime from month 6 onwards.

However, you can only redeem in a $500 denomination up to the total amount invested with a $2 fee per transaction. You should note you will not receive any further interest from the amount you have withdrawn.

For example, if you initially invested $10,000 and you choose to withdraw $6,000 after 1 year, your account will only be left with $4,000. You will only receive the coupons for the $4,000 left in the account.

How can I redeem my savings bond?

It is simple to redeem your savings bond. All you have to do is go to your bank and tell them that you’d like to redeem your SSB.

The interest will be paid directly to your savings account within a few days after they process the redemption.

For more information regarding redemption, visit here!

Pros and cons of Singapore Savings Bonds

Benefits:

1. Extremely Low Risk: The Singapore Savings Bond (SSB) is a safe and low-risk investment product the Government of Singapore offers. The only risk for the SSB is default risk; default risk occurs if the Singapore government goes bankrupt and cannot pay the coupons.
2. Guaranteed Returns: Your returns are guaranteed once you buy into the SSB.
3. Stable “Passive Income”: If you have a large sum of cash sitting around, getting the SSB could yield a stable 3-4% passive income.
4. No volatility: One key benefit of this bond is that it is not volatile,

Downside:   

1. Low rates of returns: As the bond is very low risk, the rate of returns are considered low compared to higher risk bonds or equities
2. Cannot beat inflation: As of writing, Singapore’s inflation rate is 6.7% (https://tradingeconomics.com/singapore/inflation-cpi#:~:text=Rate+Below+Estimates-,Singapore’s+annual+inflation+rate+fell+to+6.7%25+in+October+2022,than+market+consensus+of+7.1%25.). The bond’s coupon is only 3.4% which is far lower than the prevailing inflation rate.
3. Withdrawal fee: While the bond is relatively risk free do note that there is a $2 fee for every withdrawal transaction. For investors intending to withdraw $500 a month, the fee is about 0.4% of withdrawal amount. Hence the real return is 3.7%-0.4% = 3.2%.
4. Low returns for the long time horizon: The SSB has a time horizon of 10 years (till maturity); however only gives a return of under 4% p.a. (not compounded). The average stock market grows at 8% p.a. (compounded interest); hence for the same time horizon, equities could yield higher capital appreciation for the investor.

So, who should invest in Singapore Savings Bonds?

Singapore Savings Bonds (SSBs) are an attractive investment option for those looking to diversify their investment portfolio with bonds. Investors investing heavily in equities might find it useful to diversify their assets into SSB to hedge against economic downturn.

SSBs are also suitable for investors who want a fixed income (in the form of coupons) with guaranteed and stable returns. SSBs are suitable for low-risk investors with a large amount of cash.

Young people with an investment time horizon of 10 years or more could find SSB’s interest rate too low and might prefer to invest in equities instead! Read our related articles here:

Are Singapore Savings Bonds worth buying now?

Yes, the interest rates for the SSB are at an all-time high now, and the returns are guaranteed for the next 10 years.

Based on interest rate projections, the expected interest rate from 2022 to 2027 is 2-4%. Your investment in Singapore Savings Bonds will likely be higher or match the forecast.

If you are a low-risk investor, or you are trying to diversify your portfolio into bonds, now might be a good time to get the SSB.

What are the alternatives to Singapore Savings Bonds?

If you are an investor who is willing to take higher risks, equities and Real Estate Investment Trust (reits) could be better alternatives to the Singapore Savings Bond.

However, if you are a conservative investor, T-bills and income bonds are good alternatives. In fact, for short-term investors, we would recommend T-Bills as they have a shorter maturity date

How do I apply for an SSB?

UOB (United Overseas Bank) is one of the three banks appointed by the Monetary Authority of Singapore to distribute the SSBs.

To apply for an SSB, you must have a local bank account with these three banks – DBS Bank/POSB, OCBC Bank and UOB. This bank account will need to be linked to your CDP (Central Depository) securities account before you can start making monthly investments into your SSB. 

Conclusion – Is Singapore Savings Bond worth buying?

It is true that SSB is an attractive low-risk investment product. It has features of coupon payments (giving stable passive income) as well as low risk as the Singapore government backs it. However, it has a long time horizon of 10 years, which may not be suitable for all investors.

When it comes to investing in Singapore Savings Bond, there is no clear-cut answer. Ultimately, it depends on your financial goals and preferences.

For example, if you are looking for a low-risk investment that gives you a guaranteed return with no risk of principal loss, then the Singapore Savings Bond could be a great option for you.

On the other hand, if you are looking for higher returns with some risk of principal loss, then other options may be more suitable.

Ultimately, whether to invest in Singapore Savings Bond should be based on your individual needs and preferences.

Find out more about other asset classes and investment strategy

There are over 6 different asset classes, and some of them will yield higher returns than the SSB; find out what they are here!

Apart from the SSB, you can consider how to construct an investment portfolio suitable for your needs and lifestyle. If you are young, with little capital, we suggest the dollar cost-averaging strategy as a low-risk investment approach.

Check out our investment Master blog to learn more about investing!