SG Savings Bond Part 1: An Alternative to Bank Savings

SG SAVINGS BOND – AN ALTERNATIVE TO BANK SAVINGS

For the first time in Singapore’s Savings Bond (SSB) history, the 2018 Feb issue of the SSB was oversubscribed by $22 million (Click here to read more). In layman terms, it’s like going to the chicken rice store and ordering 10 packets, only for the store owner to tell you that the max everyone can buy is 8 packets because it’s so popular.

The reason for its popularity can be partially attributed to the relatively higher interest rate in the first few years vs previous issues (Starts at 1.55%).

Screen Shot 2018-03-05 at 3.41.37 PM
Image credit: SGS

I bought the SSB when it was first introduced and issued in September 2015. It’s currently into its 3rd year. It started out at only 0.96% but has stepped up to 1.93%.

Screen Shot 2018-03-05 at 3.36.33 PM
First Issue: Oct 2015

I’ll be splitting this topic into two segments. ‘Basic’ will be for those who are totally new to SSB and I will attempt to make it simple, avoiding as much financial jargon whenever possible.

‘Advance’ will be for those who already know what it is about but want a deeper analysis into asset allocation. (Stay tuned for more)

The Basics

What is this particular government “Bond” about?  It’s the government borrowing money from you for a fixed period (10 years). In return, you get paid a certain percentage of interest, twice a year, until the end (maturity) of the bond. At the end of the bond you’ll also be returned the original sum of money (bond principal) invested.

Based on the current issue (buy in March, issued in April 2018), you’ll get your first interest payment of $71 in October 2018.

Here is a table based on $10,000 invested:

April SSB
Average interest over 10 years = 2.31%

WHY you should consider SSB:

  • A bowl of noodles in the 1990s cost $2. Fast forward twenty years later, a bowl of noodles easily cost $4. If you leave money in a bank that hardly gives any interest (bank interest has been hovering around 0.1%), your $2 saved then won’t be able to buy you the same bowl now. That’s called inflation.
wonton mee
6th Ave wonton mee. This used to cost $2 when I was a kid. It cost $3.50 now
  • Savings bond issued from the Singapore government are very safe. Let’s put it this way, the only time you’ll have to worry about your investment in SSB is if Singapore engages in a full on war and/or if the government completely mismanage its finances. If that ever happens, you’ll have other more serious things to worry about. Singapore’s credit rating is triple A (AAA) which also makes it the safest possible investment one can hold.
  • Unlike traditional bonds or fixed deposit, you can take out (redeem) in multiples of $500  ANYTIME without penalty. (waiting time: 1 week to 1 month depending on time redeemed)
  • It’s tax exempt.

WHO can buy SSB?

Anyone with a bank account (DBS/POSB, OCBC or UOB) with an individual CDP securities account (also the account to buy stocks and shares with) can purchase. Click here for further information on how to get a CDP account.

HOW much can one buy?

The minimum sum you need to commit is $500

The maximum amount you can HOLD is $100,000

WHERE can you buy SSB?

Through internet banking and Bank ATMs. Read here on how exactly to go about buying when you already have a CDP account opened.

 

There are a few considerations to make before committing to buying the SSB. I will address these considerations in an upcoming post. Topics to look forward to:

– Using SSB as part of your asset diversification

– Interest rate comparisons

– Allocating in SSB in anticipation of the “big one”

 

Till then, I hope I’ve benefited some of you who are completely new to this whole ‘finance thing’. Ciao!

 

Disclaimer: The writings in this blog are purely my view. They do not represent the Singapore government or any other institutions. Please do your own due diligence (dyodd) when investing.

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