Hi Singaporean Millennials!
Today, I will be talking in detail about a kind of savings instrument. It is none other than our Singapore Savings Bond (SSB)!
Quoted from the website: sgs.gov.sg
“Singapore Savings Bonds are a new type of SGS designed to offer individuals a long-term, flexible savings option with safe returns. They are ten-year bonds that pay higher interest over time based on market SGS rates, and can be redeemed early on a monthly basis. Savings Bonds are issued monthly and can be purchased in units of $500. Interested investors can refer to the Savings Bonds website for more information over here.”
Now that we know what it is roughly, let us answer the more important question.
Looking at the historical interest rates since its inception in 2016, we can tell that the average 10 year interest rates range from around 2-3%. Look at the yellow graph below.
The interest rates are definitely not fantastic, especially when compared to the yield from other investment products such as stocks and ETFs. However, the rates are still far more superior than that of fixed deposits from banks, which usually ranges from 1-2% interest rate.
SSBs are guaranteed by the Singapore government. The government has an international credit rating of “AAA” by international credit agencies. This means that the chance of SSBs defaulting is close to zero unless something really bad happened to Singapore, causing SSB to be no longer guaranteed by the government.
I can honestly foresee this happening only if the Singapore government faces a major political revolution, military coup, natural disaster or anything of a grand scale that causes the whole economy to be disrupted.
“Assuming SG economy ‘dies’, you will not be just worried about the mere $100,000 put in SSB, but also your career, your safety and other more important stuff.“
As mentioned previously, SSB is a form of Singapore Government Securities (SGS). However, it is also very different from SGS itself.
“SGS is always subjected to price fluctuations when selling in a secondary market but SSB can always be redeemed in full without any shortchanges.”
Secondly, whenever you withdraw before the next coupon repayment, the accrued interest will also be given to you along with the principal sum redeemed.
So good meh?
In short, I prefer to call the SSB ‘SGS in steroids’. With the same interest rate, the principal sum is guaranteed unlike the SGS. You can also redeem early anytime you want without any penalties incurred and have whatever interest rate is accrued thus far to be given to you.
What’s the catch leh?
In life, whatever decision made will have opportunity cost. This is also known as the next best alternative forgone in economics terms. Buying SSB incurs an opportunity cost, as the funds could have been put in higher yield interest rates products such as stocks and ETFs.
“However, when looking at the risk-adjusted returns, SSB is potentially more worth it as it possesses virtually close to zero risk if we assume the current state of stability in Singapore.”
If you decide to redeem your SSBs before the maturity year, it will usually take 1-2 months’ time before you can receive back your money. More details can be found out from the SSB website over here.
Applying for and withdrawing SSBs each time will cost $2. However, I do not see this as an issue since the small amount is regarded as processing fee. Honestly, given the smallest sum of SSB you can apply for, which is $500, the largest percentage of fee for an application is just a mere 0.4%. Usually, people will save up enough funds to apply one shot so as to reduce transaction cost. In that case, percentage of fee will be drastically lower.
So SSB or not?
Given the pros and cons listed above, I will regard SSB as an ‘okay’ investment.
The reason is quite simple. Given a rough yearly inflation rate of 3%, I doubt that SSB can fully protect your cash given its estimated interest rates of 2-3%.
Will SG Finance Guy use it?
“Honestly, I do not consider it as an investment any more than considering it as a fixed deposit with a better deal“
Hence, I tend to treat SSB as one of my savings accounts that can apportion my emergency fund appropriately. I can place up to 40% of my emergency fund in SSB to prevent further loss in real value. The other 60% can be kept in a high interest rate savings account like CIMB FastSaver for ‘ultra-emergency’ cases.
“Interestingly, the 1-2 months lag time for SSB redemption can actually be a really good deterrent for impulsive purchasing of ‘emergency’ items.”
Just warn you ah!
On a side note, in case you didn’t know, SSB holdings are limited to $100,000 for each individual. So, you can really say that SSB is a favour offered by the government and not meant for abuse purposes like an ultra rich person hogging up all the bonds.
“The end goal of the SSB is for the day-to-day Singaporeans to have a safer and better way to store their savings in the long term compared to fixed deposits.”