The SSB vs CPF: Which One Has Better Returns?

With the stock market plunging into bear market territory, one silver lining amid all the turmoil is that the interest rate for the SSB has been mounting. But how does the SSB fare against another popular investment, the CPF? 

With the stock market and crypto in the red, investors have been turning to ‘stable’ investments. One such investment that has stood out recently is the Singapore Savings Bonds (SSB). In fact, the 10-year average SSB interest rate of has been increased to 3.21% in October, from September's 2.8% per year. 

Not surprisingly, the attractive returns caught the eye of eager investors and demand naturally went through the roof.

For August, applications surged to a new high of S$2.45 billion — the highest since the SSB was launched in 2015. This was 3X more than the S$700 million allocated amount. Demand for the September 2022 issue was also not that far behind at S$1.9 billion, more than 2X of the allocated S$900 million.

Meanwhile, another investment that’s comparable in terms of returns and risk is your CPF Ordinary and Special accounts. 

Generating a return of 2.5% and 4% per annum respectively, your CPF Ordinary (OA) and Special Account (SA) provide you with risk-free interest, and you’ll also stand to earn compound interest on top of the interest that you already earn. 

As both the SSB and CPF are good investments to hedge against volatility, you may be wondering which investment is better. 

On paper, your CPF SA and RA’s 4% interest rate is higher than the SSB’s current 2.8%. On top of that, CPF also offers compound interest. 

However, a higher interest rate doesn’t automatically mean that it’s a better investment. In fact, the SSB holds a couple of advantages over the CPF, which we’ll outline further below.

But first, a quick recap on the SSB:

What is the SSB?

The SSB is a bond issued and backed by the Singapore government. It's meant to be low-risk and fixed-income investments to help you grow your savings.

Each month, a new savings bond will be issued, and each savings bond has a tenure of 10 years. The interest is paid out every six months, similar to dividend investing. 

The SSB has a “step-up” interest rate system, where the interest rate gradually increases each year. This means that the longer you hold on to the bond, the more interest you’ll get each year. 

The interest rate for the entire 10-year term is also fixed, so you know your expected returns when the bond matures.  

What’s more, the threshold to start investing is just S$500. Besides cash, you can also invest using your Supplementary Retirement Income (SRS) funds. 

Despite being a long-term investment, SSB is highly liquid. And, unlike fixed deposits, you’re free to withdraw your money (principal amount invested + any accrued interest) anytime without incurring any penalties. 

The Singapore government also holds the highest ‘AAA’ credit rating from credit agencies, meaning that it has a good track record and is unlikely to go bankrupt. In other words, your money is pretty much in safe hands.

So, why the sudden interest in the SSB?

As explained above, the reason why interest in the SSB has skyrocketed is that the interest rates have been going up. 

The 10-year interest rate for August 2022 reached a historical high of 3% per year.

The interest rate in year 1 is 2%; 2.86% in year 2; 3.07% in year 3; 3.09% in year 4; and 3.16% in year 5. The rate stays at 3.18% from year 6 to 9, eventually reaching 3.29% in year 10.

Meanwhile, the SSB interest rate in September 2022 provided a 10-year average return of 2.8% per year. 

Notably, the interest rate in year 1 is 2.63%. However, it remains unchanged at 2.71% from year 2 until year 5. The rate then gradually increases from year 6 to 10. 

While the interest rate is slightly below August 2022’s issue, 2.8% per year is quite a modest return for an investment that’s practically risk-free. Moreover, it’s still higher than what most fixed deposits offer, which is generally below 2%.

Here’s the 10-year yield of the SSB in the past six tranches:

These rates are a stark contrast to those in 2020 and 2021, where the interest rates were between 0.80% to 1.75%, as shown in chart below by Investment Moats:

Based on the recent interest rates, here’s how much you’ll get if you were to invest S$10,000 and hold on to the bond until it reaches maturity, according to Investment Moats:

You can also calculate your returns using the SSB calculator. 

Predicting future SSB interest rates 

By the way, did you know that you can also predict future SSB interest rates?

Since the SSB’s interest rate is linked to the daily average yield of the SGS in the previous month, you can actually calculate future SSB interest rates based on the historical SGS yield.

While the Monetary Authority of Singapore (MAS) has a formula for calculating the interest rates, it’s way too complex to understand (unless you’re a math genius). Check it out below:

Instead, Suz’s Money Life has a much simpler way of predicting the estimated future interest rates.

For example, to get the average 10-year yield for the October 2022 issue, you’ll need to take the daily average yields for August 2022. You can get the SGS’s historical data here. 

To get the most accurate data, it’s best to get the rates on the last application day of the bond. 

Set the start month and end month to August and select the frequency to “daily”. Then check “10-year bond yield”. 

Next, click “download”. 

On the Excel sheet, calculate the sum of all the yields. You can do this by highlighting the entire column. Then, divide that number by the number of days, which is the number of rows. 

So based on the data, the 10-year average SSB interest rate for October 2022’s tranche is:

The sum of yield: 51.39
Sum of days (number of rows): 19
Estimated interest rate: 51.39/19 = 2.70% (update: the interest rate for the October 2022 issue is 2.75%, slightly above the estimated projection)