Pros and cons of Singapore Savings Bonds
#1 Generally very stable
For SSBs, the underlying assets are Singapore Government Securities – this essentially means that you’re lending money to the Singapore Government, which has a track record of healthy budget balances year after year. The Government of Singapore also holds the highest ‘AAA’ credit rating from international credit rating agencies. As such, barring extreme scenarios, it is highly unlikely that the Singapore Government would not be able to repay the debt.
Also, government bonds are generally considered safe because, at the very worst, the government can always print more money to repay the debt upon maturity.
And if you need further peace of mind, SSBs pay out dividends every six months, which can give you the reassurance that your money is growing.
#2 No penalty for early redemption
As with other investment vehicles like endowment plans and fixed deposits, they usually charge a fee if you wish to take out your money prematurely. But with Singapore Savings Bonds, you’re free to exit the investment at any time with no penalty. When you start the investment, you are also not required to decide on a specific investment period.
This means that SSBs give you sufficient flexibility to decide how long you want to invest. If you need any emergency cash for unforeseen circumstances, you can always take out the funds that you have without having to pay.
#3 Low minimum amount
SSBs also don’t require large capital for you to get started. With as little as just S$500, you are free whatever amount you want, based on your financial situation. Of course, the higher the capital, the higher the returns, though the capital doesn’t affect the interest that you’ll receive.
This means that basically anyone can get their hands on a Savings Bond, and it also gives you the freedom to decide how much you’re willing to set aside, without requiring a high capital that would take away a bigger proportion of your savings or disposable income.
Cons of Singapore Savings Bonds
#1 Relatively low-interest return
Compared to other investment vehicles like stocks, ETFs or robo-advisors, the returns that you’ll get from SSBs are definitely less, as their interest ranges from 1% to 3%. So if you’re looking for higher yields, you can look elsewhere.
Who is eligible to apply for an SSB?
Singaporeans, Permanent Residents (PRs) or foreigners who are aged 18 and above are eligible to apply for an SSB. However, you will just have to have a bank account with one of the three local banks (DBS, OCBC and UOB) and an individual CDP Securities account.
How do I apply for an SSB?
If you want to buy an SSB, you’ll have to apply through DBS/POSB, OCBC or UOB ATMs or internet banking, or OCBC’s marble application. For SRS investors, you can apply through your respective SRS Operator’s internet banking portal. You cannot apply for SSBs in person at the bank.
The allotment results will be announced on the third last business day of the month. If you’re successful, you will be notified by the CDP by mail while SRS investors will be notified by the SRS operator.
If you’re unsuccessful or have an incomplete application, any excess money will be automatically refunded by the end of the second-last business day of the month.
How do I redeem my SSB?
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 S$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 S$2 fee will apply.
Earn more by investing in one of the brokerage accounts by comparing the fees and rates.
Singapore Savings Bonds vs fixed deposits
Fixed deposits and Singapore Savings Bonds are generally very similar — they both involve pledging a fixed amount of cash for a fixed amount of time to earn a reliable interest rate, and they are both considered low-risk investments.
However, the maximum amount you can invest for SSBs is only S$200,000, meaning that there is also a cap on the maximum amount you can earn. As for fixed deposits, you can invest as much as you want. If you’re planning on investing a huge amount of money with the bank, you might even get a higher-than-advertised interest rate.
Fixed deposits also usually allow you to withdraw the money immediately, while SSB withdrawals can take up to a month. However, fixed deposits sometimes charge a fee or return any interest paid when you withdraw prematurely and may deem you ineligible for any interest accrued. As for SSBs, early withdrawals do not result in any penalty.
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Who should invest in Singapore Savings Bonds?
With such low returns, does this mean SSBs are a bad investment? Well, not necessarily.
In a properly designed portfolio, bonds (like other investments) have a role to play. SSBs, in particular, are virtually risk-free and highly liquid, two factors that make them ideal if you’re seeking to park your money.
This need usually arises the closer you get to retirement, as you’ll need to ensure your cash is easily available, with the amount staying more or less the same.
A quick lesson on financial planning: generally speaking, an investment portfolio should focus on growing your money when you are young and possess earning power, gradually switching focus to preserving your wealth as you get closer to retirement and the loss of earning power.
It would be a bad idea to invest in something risky near retirement. A loss would jeopardise your ability to retire well. As SSBs are low-risk, low-return instruments, investors are more likely to increase their investments in them the older they get.
If you’re interested in other Singapore-related investment tools, you can also consider T-bills and SGS bonds.
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