The good, the bad, and why we can’t wait for the Singapore Savings Bonds (SSB) to be launched this year.
Updated 21 July 2015
The long wait is finally over. After months of suspense, the Monetary Authority of Singapore (MAS) has finally announced more details for the new Singapore Savings Bonds (SSB), which will be launched on 1 October 2015.
According to the MAS, between $2 billion to $4 billion worth of SSB may be issued this year, depending on demand. Applications for the first issue open on 1 September, though there is no need to rush for this because a new Savings Bond will be issued every month for at least the next 5 years.
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Still, for the keen early-birds, you may wish to mark out 1 September on your calendar. This is also the date when the final details on the SSB will be released, including information on the amount on offer and the interest pay-out schedule from the first to the 10th year. Look out for MAS’s public notice on the official SSB website, on 1 September after 4.30pm.
Just a quick recap of what we know so far:
- The SSB are a new type of government bonds designed with individual investors in mind, to help Singaporeans save and invest to meet their long-term financial needs.
- Like the Singapore Government Securities (SGS), the SSB are safe, principal-guaranteed investments backed by the triple A credit rating of the Singapore Government.
- The SSB have two unique features to entice investors: investors can get their money back at any time with no penalty, and they can earn interest linked to long-term SGS rates. As such, investors will be getting long-term interest rate returns with maximum flexibility.
To shed more light on whether the SSB is worth your while, let’s take a closer look at the details.
The SSB sound similar to the SGS. What’s the difference?
There are actually quite a few differences, as listed in the table below, but here are some key differences you should take note of. Firstly, the SGS are tradable and your capital is not guaranteed like with the SSB. Secondly, the SGS have a minimum investment sum of $1,000, which is higher than the $500 minimum sum for SSB. And thirdly, the target audience is different – SGS bonds are designed to meet organisations’ needs for a risk-free asset in their portfolios, whereas SSB are designed to meet the needs of mom-and-pop investors like us.
[Illustration Credit: The Establishment Post]
In our opinion, the SSB serves as a great savings option for everyday individuals, as it is a conservative instrument that is safe and low-cost while providing stable returns comparable to that of the SGS.
Why the fuss over the SSB?
The unique selling point about the SSB is its flexibility. Unlike conventional bonds, whereby investors get the short end of the stick if they redeem the bonds early, the SSB has no lock-in restrictions.
Although each SSB has a maturity term of 10 years, you can redeem your bonds at any time before maturity with no penalty imposed. Even if you redeem the bond early, you will still get to keep the interest paid out at six-monthly intervals.
Let’s get straight to the money. How much returns are we talking about?
Interest on the SSB will be linked to long-term SGS rates – i.e., the average interest you receive over the period you hold the SSB will match what you would have received had you bought an SBS bond of equivalent tenor.
The key difference is, while SGS bonds pay the same interest every year, the SSB offer “step-up” rates, meaning that interest payment will increase the longer you hold your bonds.
Just to give you an idea of how much to expect: the 10-year SGS has mostly yielded between to 2 to 3% over the past 10 years, with the current yield being 2.4%.
Assuming a S$10,000 investment, this gives an average interest of $240 a year or $20 a month.
[Illustration Credit: MAS]
Financial adviser Wilfred Ling has done an interesting analysis on the projected yield percentages, arguing that the realised return for the SSB is actually slightly lower than that for the SGS. If we go according to his figures, here’s how much your investments would work out to over the long run:
If you think about it, the SSB’s interest rates aren’t half bad, especially if you’re a conservative investor. Sure, they’re lower than that of long-term CPF funds, but at least they’re higher than that of short-term fixed deposits and savings accounts. If you’re looking for somewhere to park your savings (under $100,000), forget about the banks and go for the SSB instead.
How much can I invest in the SSB?
The minimum sum is $500 and the maximum sum is $100,000. In other words, you can only hold up to $100,000 worth of SSB at any one time. You can top-up in multiples of $500 and apply for up to $50,000 on any single bond issue.
(Note: These figures may be revised in future, pending MAS’s review after the programme has been in place for some time.)
Yes, there is a quota imposed, but it’s a far more generous cap than what many of us were expecting. This cap should be sufficient to meet the needs of most Singaporeans, as more than 90% of individual bank deposit accounts have balances of $100,000 or lower.
How long should I invest?
That’s really up to you. The bond tenor is 10 years, but because you can get your money back within a month with no penalty, you do not have to decide upfront the duration of your investment.
Obviously, the longer you invest, the better the yield. The question is, do you have the patience to sit on your SSB for the full 10 years?
Do I need to fulfill any criteria before getting started?
You will need:
- A bank account and ATM card with one of the participating banks – currently DBS/POSB, OCBC or UOB. (More banks may be included in future)
- An individual (not joint) CDP Securities account with Direct Crediting Service activated. Note that you must be at least 18 years old to open an individual CDP Securities account.
Wondering how to open a Central Depository account? Follow the steps in this guide.
How do I apply for the SSB?
A new SSB will be issued every month for at least the next five years. The application window for each SSB issue will open on the first business day of each month and close four business days before the end of the month.
You can apply through any participating bank’s ATMs, or via DBS/POSB’s internet banking channels. Application requests must be made in multiples of $500. Bank charges may apply.
Note that you can purchase SSB only using cash, at least for the time being. In future, the Government may consider allowing people to use their CPF savings and Supplementary Retirement Scheme (SRS) funds to buy SSB.
How will I know if I’m successful in my application?
Whether you’re successful or not depends on the demand versus supply, as we foresee oversubscription in the initial stages.
The issuance size for each SSB issue will be announced before application opens. If the demand exceeds the amount on offer in a particular month, MAS will allocate the bonds to maximise the number of successful applicants.
If you read between the lines, you’ll realise this means smaller applications stand a higher chance of being fully allotted. But fret not – if you did not receive your full allotment, you can always apply again for the next issue.
If your application is successful, you will be notified by CDP via mail of the amount of SSB credited to your account. Application results will also be announced three business days before the end of the month.
How do I go about redeeming the SSB?
The redemption process is similar to the application process – submit your request through any participating bank’s ATMs, or via DBS/POSB’s internet banking channels. You will get your cash (along with any accrued interest) back in the bank account linked to your CDP Securities account.
Do note, however, that redemption proceeds will only be processed by the second business day of the next month. So don’t invest your entire nest egg in the SSB; you should still keep a portion of emergency funds separately in case you need them urgently.
Do you have any tips for investing in the SSB?
The SSB’s pre-set coupon rate is good news if you’re an astute investor, because you’ll be able to decide whether to participate based on last month’s yield compared to current yields.
Financial blogger TradeHaven has proposed a possible strategy you could consider:
- If the 10-year SGS yield is higher than the prior month’s where the SSB would be issued at, buy the 10-year SGS.
- If the yields collapse by, say, 0.32%, you would have made 0.2% (cross the 0.12% bid offer spread on the SGX). This would translate to around 2% returns.
- Cash out the SGS and buy the SSB, which has no capital downside but pays interest.
- When the SGS yields rise again, cash out the SSB and buy the SGS. If not, hold on to the SSB till another opportunity arises.
But I’ve already placed my money in fixed deposits (FD). So how? Which is a better deal, FD or SSB?
Good question. We’re going with the SSB on this one, primarily because of its flexibility in allowing pre-mature withdrawals and the lower minimum capital amount.
Here are some statistics for comparison: the lowest minimum sum in the market now for FD is $1,000 (under the DBS Singapore Dollar Fixed Deposit Account), which is still higher than the minimum sum required for the SSB. Although FD usually come with shorter tenors (around 2 to 3 years), don’t forget that most of them offer competitive interest rates only if you deposit a much higher amount. UOB, for example, offers 1.45% interest for a 13-month FD only if you can deposit a minimum of $20,000 in fresh funds.
[That being said, many of the local banks are now offering higher FD promotional rates, which range between 1.45% to 1.8% per annum depending on the amount deposited.]
Doesn’t this make the estimated 2.4% returns and $500 minimum sum for SSB sound like a much better deal?
If you ask us, barring any further limitations yet to be announced by MAS, the SSB is going to sound the death knell for fixed deposits as well as endowment plans. Which isn’t necessarily a bad thing. Perhaps this will give banks and insurers a kick in the behind to start introducing better rates and less cumbersome policies, or risk losing a significant portion of small-time investors – a market they’ve been neglecting for far too long.
It is also our sincere hopes that the introduction of promising instruments like the SSB will pique the interest of the general public and lead to increased financial awareness and better retirement planning. (That’s what we’re here for after all – to help you manage your personal finances!)
In the meantime, we’ll be counting down the days till the SSB is launched. Stay tuned for updates.
Want to find out more? Check out the MAS’s FAQs on the Singapore Savings Bonds and the official Singapore Savings Bonds website (where you can find tools to help you keep track of application timelines and understand the SSB returns over different investment periods).
For further queries, you can also call the SSB hotline on 6221 3682.