Keen to invest in Singapore Savings Bonds (SSB)? Here are some of the most commonly asked questions answered.
With costs of living on the rise and cash subject to devaluation due to inflation, the minimum required for a comfortable retirement is expected to be vastly different 20 years from now – just as it is vastly different today compared to 20 years ago.
Instead of asking yourself if you can afford to invest, perhaps the more important question should be: can you afford not to?
If you’ve asked around for recommendations on how to passively grow your nest egg in Singapore, you’re most likely to have heard of Singapore Savings Bonds (SSB).
And if you haven’t, here’s what you need to know about investing in SSB as part of your savings and retirement plan.
- What is a bond?
- How do Singapore Savings Bonds work?
- How do I buy a Singapore Savings Bond?
- Fixed Deposit Accounts vs Singapore Savings Bond: Which is better?
- ETFs vs Singapore Savings Bond: Which is better?
What is a bond?
Think of bonds as a way for companies and governments to borrow money from you to finance new projects, maintain ongoing operations, or refinance existing debts.
In this case, the borrower is the party who issues the bonds, and the bondholder (aka you) is the one who is lending them money.
When a borrower issues a bond, it will include:
- the terms of the loan
- coupon rate (interest payments that will be made)
- the maturity date (when the principal amount will be returned to you)
Bonds are referred to as a fixed-income investment because you will receive your return on a steady, fixed schedule. This is different from equity investments, which are more volatile.
What are Singapore Savings Bonds and how do they work?
Singapore Savings Bonds (SSB) is a special type of government securities issued every month by the Singapore Government. It was introduced as a way to encourage risk-averse individuals to save for the long-term and earn interest.
You can invest a minimum of $500 to a maximum of $200,000 in SSB. This maximum refers to the total amount of SSBs you have on hand at any one time.
The cool thing about SSBs is that you can redeem your bonds any time before the maturity date with no penalty for early redemption. Accrued interest will also be paid.
Do take note, however, that you cannot transfer ownership of the SSB to another person except in specific situations (much like an overly-expensive gym membership).
This means the SSB cannot be bought or sold to anyone, pledged as collateral, or traded on SGX.
Being backed by the Singapore government, this form of investment is generally recognised as stable and risk-free.
What is the interest rate for Singapore Savings Bond?
Interest rates will vary depending on the date/month of issuance.
Current rates: As the economy falters and interest rates drop, SSBs have also become less attractive. This month, the average return over 10 years is 0.93% p.a., starting from 0.27% interest in year 1 and ending with 1.76% in year 10.
To find the latest rates for this months’ SSB, go to the MAS website here.
If you notice, the interest rates are tiered, so you earn a progressively higher interest the longer you hold onto the bond.
How much can I earn if I invest $10,000?
Given the projected interest rates from the August 2020 issuance, you may receive about $946 in interest earnings on your principal investment, if you hold on all the way to maturity in August 2030.
Got a different sum in mind? The MAS has a SSB calculator for you to find out what your projected returns are.
What are the pros and cons of investing in government-issued bonds?
Government-issued bonds offer safety of principal and income, so they are considered ideal investments for the risk-averse. Government-issued bonds are considered “risk-free” since the issuing government backs them from issuance to maturity.
But government-issued bonds offer a low coupon rate as compared to corporate bonds, and sometimes fall behind with rising inflation rates. Therefore, your real rate of return may turn negative when inflation exceeds the coupon rate.
Are Singapore Savings Bonds safe?
SSB was introduced in October 2015 by the Monetary Authority of Singapore (MAS) to encourage Singaporeans to save. It is a low-risk, sovereign-backed bond asset.
The Government of Singapore, who issues and backs the SSB, holds the highest ‘AAA’ credit rating from international credit rating agencies.
Can Supplementary Retirement Scheme (SRS) funds be used to buy Singapore Savings Bonds?
Yes, you can use your SRS funds to apply for SSBs (you cannot, however, use CPF funds to invest in SSBs).
Submit your SSB application through the ibanking portals of your participating SRS operators (DBS/POSB, OCBC, or UOB).
Similar to cash applications, the minimum application amount is $500 and a $2 transaction fee will be deducted from your SRS accounts for each application.
With the inclusion of SRS funds, the Monetary Authority of Singapore (MAS) raised the Individual Limit for SSB from $100,000 to $200,000 in December 2018. This limit applies to the total amount of SSBs you have on hand at any one time.
How do I buy a Singapore Savings Bond?
You can buy SSBs with cash or SRS funds.
For cash applications
You will need:
- a bank account with any of the participating banks (Citibank, DBS/POSB, OCBC, HSBC, Maybank, OCBC, Standard Chartered Bank, and UOB)
- an individual SGX Central Depository (CDP) account linked to your participating bank account through Direct Crediting Service (DCS)
Think of your participating bank account as a place to hold your cash, and your CDP account as a special account to hold your shares and bonds.
To open an individual CDP account, you can apply through your participating bank, or through any brokerage firm in Singapore. You can find out more about how to open a CDP account here.
Once you have a CDP account, you can start applying for SSBs through the ATMs or ibanking portals of your participating bank. The funds will be deducted from your account at the point of application.
You cannot apply for SSBs in person at the bank.
For Supplementary Retirement Scheme (SRS) applications
You will first need an SRS account. You can open one with DBS, OCBC, or UOB (aka your SRS operator).
Apply through the ibanking portal of your SRS operator and the SRS funds will be allocated at the point of application.
SSB application using SRS funds do not require the opening of a CDP account.
Important periods to watch out for
Applications are open from the 1st business day up to the 4th last business day of each month, 7:00 am to 9:00 pm, Mondays to Saturdays (excluding Public Holidays). Participating banks will charge a non-refundable $2 transaction fee for every application request.
The Monetary Authority of Singapore (MAS) will allot the new SSBs among applicants on the 3rd last business day of the month, known as Allotment Day.
In case the total amount of applications exceed the amount on offer in a particular month, you may not get the full amount you applied for. The excess cash will be refunded to you on the 2nd last business day of the month. SSBs will be issued on the 1st business day of the following month.
If you invested using cash, you will be notified of the amount of SSB allotted to you by CDP through the mail. You can also check your SSB holdings through the CDP internet portal or by calling 6535-7511.
If you invested using SRS funds, you will be notified of the amount allotted to you by your SRS operator through the mail. You can also check your SSB holdings with your SRS operator.
Otherwise, you may use the Singapore Savings Bonds internet portal to keep track of your combined SSB holdings.
You will receive the first interest payment 6 months after the SSB is issued, and it will be credited to the bank account that is linked to your CDP or SRS account.
Interest will be paid every 6 months after that on the 1st business day of the month, and will be reflected in your CDP or SRS statements.
Why is there a difference between my Applied and Allotted amount of Singapore Savings Bonds?
There may be situations when the total number of SSBs applied for during the month exceeds the available supply. If that happens, MAS will allot SSB amounts according to the ‘Quantity Ceiling’ format.
This basically means that every applicant is first allotted a minimum of $500. Then, the ‘ceiling’ is raised in multiples of $500 until the total SSB amount has been allotted.
For example, in the case where only $10,000 of SSBs are available, but MAS received $18,000 in applications, here is how the funds will be allotted:
If you don’t get the full amount of SSB applied for, you will be refunded by the 2nd last business day of the month.
How do I redeem a Singapore Savings Bond?
When your SSB matures after a decade from its issuance date, your principal and interest payment will be credited to your participating bank account (not your CDP account) via Direct Crediting Service (DCS). If you had used your SRS funds, the payout will be made to your SRS account.
In case you want to redeem your principal and interest income before the SSB matures, you have to submit your redemption requests through the ATMs or ibanking portals of your participating bank. A $2 transaction fee will apply for each redemption request.
Redemption requests for SSB purchased with SRS funds can only be made through the ibanking portal of your SRS operator (DBS/POSB, OCBC, or UOB). A similar $2 fee will apply.
Can foreigners buy Singapore Savings Bonds?
Singaporeans, PRs, and foreigners can all apply for SSBs. All you need is to be at least 18 years old and possess an individual SGX Central Depository (CDP) account.
Fixed Deposit Accounts vs Singapore Savings Bond: Which is better?
There are lots of similarities between Fixed Deposits (FD) and SSB: they both involve pledging a fixed amount of cash for a fixed amount of time to earn a reliable coupon rate. Both are also considered minimal risk investment products.
However, the maximum value you can invest in SSB is $200,000, whereas for FDs, you can invest as much as you want – in fact, if you’re planning to place a huge amount in FD with the bank, you’ll most likely be able to negotiate for a higher-than-advertised coupon rate.
FDs also usually allow you to withdraw funds immediately, while SSB withdrawals can take up to 30 days. Do take note that some banks have clauses that indicate an early FD withdrawal before maturity may require an administrative fee, may not be eligible for any interest accrued, or may even require you to return any interest paid. Be sure to read the T&Cs on this.
SSB tends to have a higher interest rate (2.17% on average) while FDs have a lower interest rate (1.15% on average). So take note when deciding between the two.
ETFs vs Singapore Savings Bond: Which is better?
The SSB is a special type of government securities issued every month by the Government of Singapore to encourage individuals to save for the long term. The SSB earns a fixed interest rate that increases over time.
On the other hand, an Exchange-Traded Fund (ETF) tracks bonds, stocks, commodities, or a basket of assets like an index fund. An ETF trades like company shares on a stock exchange. It is subject to price changes throughout the day as they are bought and sold, which means greater volatility, but higher potential earnings.
Which is better depends on your risk appetite and personal financial goals. If you are risk-averse and want a low but stable interest that increases gradually over time, then go for SSB.
However, if you are a risk taker and want to earn a high but volatile interest that fluctuates based on the value of its core asset holdings, then go for ETF.
When planning your own investment portfolio, be sure to personalise it for your own risk appetite and needs. Are you looking to buy a house? Are you planning to have children, and if so, how many? Will your parents be relying on you financially? What sort of lifestyle are you aiming for in your retirement?
SSBs are great for those looking for a form of long-term savings that is relatively risk-free. However, the low coupon rate means that you’ll barely keep ahead of inflation, so if possible, don’t put all your nest eggs in one basket. It is always recommended to keep a diversified portfolio.
And as always, DYODD – Do Your Own Due Diligence. Risk, no matter how small, is still risk, and it always pays to invest with both eyes open (no pun intended).
(That being said, is there ever a no-risk situation when it comes to money? Even holding cash in your mattress is not exactly risk-free. )
Historical performance should not be taken as an indication of future performance. And before you invest, always be sure to have some emergency cash stashed away for unforeseen rainy days.
Read these next:
Fixed Deposit vs Singapore Savings Bond (SSB) vs Savings Account: Where To Put Your Money?
Best Alternatives to Savings Accounts in Singapore (2020)
Best Brokerage Accounts To Start Your Investment Journey In Singapore
5 Types of Alternative Investments You Can Add To Your Portfolio
Pros and Cons of Having A Supplementary Retirement Scheme (SRS) Account