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Singapore Savings Bond (SSB) Review — Interest Rates & Buying Guide (2019)

Singapore Savings Bond Review

Ever since the Government launched Singapore Savings Bonds (commonly abbreviated as SSB) in 2015, it has gone from being a super-conservative investment with low returns, to an actually decent investment vehicle with surprisingly good returns given its virtual lack of risk.

So Singaporeans who previously turned up their noses at Singapore Savings Bonds are now starting to take notice. In fact, it was oversubscribed for almost all of 2018.

 

Let’s backtrack a little. What are Singapore Savings Bonds or SSB?

Obviously, Singapore Savings Bonds are a type of “bond”. When you buy a bond, you’re really lending money to whoever issued it. The issuer can be a private company, but in the case of SSB, it’s the Singapore government.

(In other words, if you buy a SSB, you revoke your right to complain about the greedy Gahmen always taking Singaporeans’ hard-earned cash.)

So, why is everyone clamoring to lend the government money?

Because Singapore Savings Bonds gives you good returns with virtually zero risk. SSBs are arguably safer than putting your money in a savings account, because banks can close down, but the sun never sets on the Lee empire.

In return for your generosity in loaning them your hard-earned money, the Government will pay you interest every 6 months, like clockwork.

Finally, SSBs also let you choose how long you want to invest, without any lock-in period. The longer you keep the money in the bond (up to a maximum of 10 years) the higher your returns, but if you choose to liquidate it early there’s no penalty at all.

What are Singapore Savings Bonds (SSB)?SSBIt’s a type of bond.When you buy a bond, you lend money to the issuer.The issuer in this case is the Singapore government.What are the returns like?The interest rate steps up each year you keep your bonds.You can check the monthly bond rate at the Singapore Savings Bonds official website: www.sgs.gov.sgAre Singapore Savings Bonds worth buying?ProsConsNo lock-in periodIt’s up to you to decide how long you want to investHigh liquidityYou won’t be penalized for withdrawalsLow riskIt’s a low-risk investment with good returnsRegular payoutsYou get regular interest payouts every 6 monthsLow starting costYou only need $500 to start buying Singapore Savings BondsReturns are lowSingapore Savings Bonds returns are low compared to investments like REITs and ETFs$200,000 capThere’s a $200,000 cap for the amount put in Singapore Savings BondsMAXBuying Singapore Savings Bonds make sense if you have less than $10,000 in your fund, or if you just want to stash your money somewhere safe for a few years.

Singapore Savings Bond interest rates (Nov 2019)

Let’s cut to the chase — you probably want to know what sort of returns you’re looking at if you buy an SSB. This is easy to get hold of. Just check the official website for published SSB interest rates. New bonds are issued every month, and the interest rates vary.

Here are the SSB interest rates for the November 2019 bond, and an illustration of the amount of interest you can get on a $10,000 investment:

Tenure Average interest per year Total interest on $10,000 principal
1 year 1.62% $162
2 years 1.62% $324
3 years 1.62% $486
4 years 1.63% $652
5 years 1.65% $825
6 years 1.67% $1,002
7 years 1.68% $1,176
8 years 1.70% $1,360
9 years 1.72% $1,548
10 years 1.74% $1,740

Note that there are two sets of numbers on the website — interest rate and average return per year. This is because the interest rate can step up from year to year.

For example, the interest rate is 1.63% a year from Years 1 to 3, but it changes to 1.68% in Year 4. So if you withdraw after Year 4, your actual returns from the entire investment averages out to (1.62% + 1.62% + 1.62% + 1.68%, divided by 4) 1.63% per year.

For practical purposes, that’s the number that matters.

 

Are Singapore Savings Bonds worth buying now?

Singapore Savings Bonds are a lot more like fixed deposits or savings accounts than a “real” (i.e. risky) investment vehicle like trading on the stock market. You’re hardly going to become an overnight millionaire from SSBs.

That said, it’s definitely an option to consider if you want a low-risk investment. Whether you’re looking to balance out your portfolio of higher-risk investments, or just want to stash your money somewhere safe for a few years, SSBs are a viable option for you.

However, bear in mind that Singapore Savings Bond interest rates are not as high as they once were.

Back in 2018, there was a huge surge in demand for Singapore Savings Bonds due to unprecedented interest rates.

Even for short tenures, SSB interest rates regularly broke the 2% p.a. ceiling back then. It was not unusual to see average annual interest rates like 2.2% or more, even for short-term investments of a few years. For longer tenures (up to 10 years), the average interest rate could even be pushing 3%.

In contrast, the current SSB is quite “meh” as it peaks at 1.74% average interest per annum over 10 years.

At the same time, the low- or zero-risk alternatives, such as savings accounts and fixed deposits, are still going strong. Banks have been upping their bonus interest caps on the former, while you can easily find a 2% p.a. interest rate on the latter.

 

What are the alternatives to Singapore Savings Bonds?

Picture this: You’ve saved up $20,000 and you’re looking for somewhere to park it for a couple of years. It’s part of your wedding/moving house/new car fund, so you definitely don’t want that cash anywhere volatile.

Apart from a Singapore Savings Bond, you can also place it in a fixed deposit account and get a promotional rate like 1.85% p.a. for a 12 month tenure.

Or you can open high interest savings account, which gives you bonus interest when you perform monthly actions (e.g. salary crediting, credit card spending).

Here’s what your returns will look like after a year:

Type of investment Interest rate per year Total interest
Singapore Savings Bond 1.62% $162
High interest savings account 1.85% $185
Fixed deposit account 1.85% $185

As you can see, the current Singapore Savings Bonds lose in comparison to the savings account and fixed deposits. If you are looking for a hands-off place to park your cash, a fixed deposit is better.

However, if you have less than $10,000 in your fund, you would be out of the running for most fixed deposits, so you may want to consider SSB instead. In fact, you can buy SSB with as little as $500, making it a nice baby step into the world of investing.

Of course, there are also limitations to SSBs. No one’s saying you should dump your lifelong savings in there. SSB returns are considered low compared to investments like dividend stocks or even CPF interest rates (4% on your Special Account!).

Note also that each person can only put a maximum of $200,000 in SSBs, so after that ceiling you have to find some other vehicle for your money.

 

How to buy Singapore Savings Bonds

Before you buy, there are a few important things you need to know about Singapore Savings Bonds…

Factor What you need to know
Eligibility Anyone aged 18 and above can buy SSBs
Minimum amount $500. SSBs are sold in multiples of $500
Maximum amount $100,000 per individual, can be across multiple SSBs. Cap increased to $200,000 from Feb 2019.
Transaction fee $2 per transaction, each time you buy or sell a bond
Interest payments Every 6 months. Note that you won’t earn interest on your interest (no compound interest), because interest is paid out.
Risk factor As low as it gets – the government has an “AAA” credit rating. Principal is guaranteed.
Ownership SSBs cannot be bought or sold like shares. You cannot transfer ownership of SSBs to another person.
Taxation SSBs are exempt from tax

Now that’s out of the way, here’s a simple 3-step guide to buying your first Singapore Savings Bond.

Step 1: Get a DBS/OCBC/UOB bank account + CDP Securities account

Most Singaporeans already have a bank account with one of these 3 local banks. If you do, go ahead and open an individual CDP account by following the steps on the website. You’ll have to print out an application form and mail it with supporting documents.

Step 2: Apply for Singapore Savings Bond

A new bond is released at the start of every month; see here for this month’s Singapore Savings Bond. There’s usually an application period of about 3 weeks.

You can apply for your SSB through iBanking or ATMs during the period. Have your CDP account number handy for that. You’ll need to specify the amount you want to invest, but no need to commit to a tenure.

The amount you want to invest + $2 processing fee will be deducted from your bank account when you apply.

Step 3: Secure your Singapore Savings Bond

After the application period closes, you have to wait till the end of the month to find out if you have secured the bond. If that month is oversubscribed and you can’t get the amount you want, the excess will be refunded within the next day.

Bonds are officially issued by the 1st business day of the following month. You’ll be officially notified by CDP by post. After which, you can start receiving interest payments every 6 months.

How do I buySingapore SavingsBonds?Here’s what you should know before you headout to buy those bonds:Low6 mthsInterestpaymentsEveryRisk factorPrincipal isguaranteedNon-transferableOwnershipCannot be boughtand sold like sharesNoneTaxationSSBs are exemptfrom tax$50018 yrsEligibilityand aboveMinimumAmountSSBs are sold in multiples of $500$200,000MaximumAmountacross multipleSSBsTransactionfeeper transaction$2to buying your firstSingapore Savings Bond­ Step GuideGet a DBS/OCBC/UOB bank accountand CDP Securities account1You’ll need to open these two accounts:Bank account withDBS/OCBC/UOB If you don’t already have an account with one of these banks, open one.CDP accountOpen an individual CDP account by following the steps on their websiteApply for a Singapore Savings Bond2A new bond is releasedon the SSB website at the start of every month.You’ll then have a 3-week window to apply for thatparticular bond.Apply through an ATMor iBanking.Remember tohave yourCDP numberhandy.The amount youwant to invest+$2 processing feewill be deductedfrom your bankaccountSecure your Singapore Savings Bond3You’ll find out at the end of the month if you have secured the bond.Did you get your SSB?NoDid you getthe amountyou wanted?YesYesNoYou’ll be notified by postThe bond will be issued by the 1st business day of the following monthYou can start receiving interest payments every 6 months!Excess money will be refunded the next dayYou’ll be notified by postThe successful bond amount will be issued by the 1st business day of the following monthYou will berefunded in fullthe next day

How to sell (redeem) Singapore Savings Bonds

You can sell (technically, “redeem”) your SSB any month before your full 10 years are up, with no penalty. Here’s what happens at each stage:

When you redeem What to do What you’ll receive
Early redemption (when there’s a scheduled interest payment) Submit redemption request + pay $2 transaction fee Principal amount + full interest
Early redemption (in between scheduled interest payments) Submit redemption request + pay $2 transaction fee Principal amount + pro-rated interest
Full term (after 10 years) Nothing. No need to pay $2 transaction fee Principal amount + final interest payment

For early redemptions, submit your request through DBS, OCBC or UOB ATMs or iBanking. You can redeem the bond partially, in multiples of $500, and you can redeem more than one bond each time. Note that there is a $2 transaction fee for every redemption request.

There’s a “one month notice” when you redeem your SSB. The amount you’re owed will be auto-credited into your bank account only the next month, so don’t wait till the very last minute to redeem your SSB!

How do I sellSingapore SavingsBonds?You can……redeem bonds partiallyin multiples of $500…redeem more than onebond each timeSSBSSBSSBSSBSSBHere’s what will happen according to whenyou choose to sell your bonds:Duringa scheduledinterest paymentEarly redemptionWhat to doWhat willyou get?Submit aredemptionrequestPay $2transactionfeePrincipalamountFullinterestIn betweenscheduled interestpaymentsSubmit aredemptionrequestPay $2transactionfeePrincipalamountPro-ratedinterest$2$2Completed fullterm, after 10 yearsFull termWhat to doWhat willyou get?Nothing.There will be notransaction fees.PrincipalamountFinalinterest*Submit your redemption request through DBS/OCBC/UOB ATMs or iBankingTake noteYou will be charged a $2 transaction for each redemption request.It will take a month before you see your money auto-credited into your bank account.!

A final note on Singapore government bonds (or SGS bonds)

In case you were wondering what you can do after you hit the cap on Singapore Savings Bonds, there are actually a few other types of Government-related investment vehicles that offer that same “AAA” credit rating. Like SSBs, the concept is that you lend money to the Government.

However, the technicalities are more complex than SSB and thus they require more investing knowledge – the MAS page on SGS is a good place to start. They also have higher barriers to entry as the minimum investment is $1,000.

In brief,

Singapore Government Securities (SGS) Bonds are bonds with scheduled (every 6 months) interest payouts. If you think that sounds like Singapore Savings Bonds, you’d be right, because SSBs are a type of SGS bonds. The tenure can be as high as 30 years. During this period, the price of the bond fluctuates, so you can choose to sell it to make a capital gain (on top of your regular scheduled interest payouts).

Treasury Bills (T-Bills) work differently from bonds. For one thing, they’re much shorter-term and last less than a year. There are no interest payouts either. Instead, it’s kind of like your typical “buy low, sell high” situation. You buy a T-Bill at a discount, and then sell it off at full price when it matures. The return on your investment is the price difference between the two.

For more info, head to the MAS website to see what SGS bonds or T-Bills are on offer.

Have you ever invested in Singapore Savings Bonds? Share your tips and experiences in the comments!

 

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