If you’re caught between choosing to invest in Singapore Savings Bond (SSB) or any other form of investment, this is a guide on why you should be keen on getting savings bonds.
Singapore may have a lot of other investments, but most of them present high risk, which some investors may balk at.
Before we get into the details, let’s be clear of what exactly is Singapore Savings Bond (SSB)?
In 2015, the Government of Singapore had launched this investment vehicle with the aim to help the people to invest their money in a scheme that offers low risks. When it was first launched, the returns of Singapore savings bonds were relatively low.
However, it is now considered as one of the best options for Singaporeans to invest in due to the good returns and low risks.
This new form of investment provides the Singapore Government with a good alternative to combat the inflation rate of 1.9%, especially for investors who are looking for a risk-free type of investment. But you might wonder, how exactly do Singapore bonds work?
How does it work?
Basically, SBB is a type of ‘ savings bonds’ whereby it aims to keep the money that you have invested safely. Here’s the analogy. When you buy a savings bond, the issuer is really just ‘borrowing’ your money for a while. This issuer varies from a private company to the government. But for SSB, the issuer is the Government of Singapore.
So, how can you trust that the money that you have ‘lent’ will be kept safe? Worry not, SSB allows you good returns and most importantly, zero risks! The biggest perk of keeping your money through SBB is that you will face virtually zero risks especially with the fact that this bond is fully backed by the Singapore Government. This is a very crucial advantage if you would like to keep your money in a safe place, other than the bank. However, do note that with relatively low risks, it does not guarantee that you will get a large sum of money.
Singapore Saving Bonds also has features that make it more accessible, convenient and suitable to the interested investors. As such, some of the features are as below:
Individuals who are aged 18 years and above can apply for SBB.
The term is up to 10 years and is issued by the Government of Singapore.
The minimum amount to be invested is $500. If the investment amount is higher than the minimum amount, you may add subsequent multiples of $500. The maximum that an individual can hold is $200,000.
The interest amount should be paid every 6 months after issuance. Once it has been issued, the interest rates will be fixed based on the Singapore Government Securities (SGS) yields, and it will be locked until the next issuance.
If you link your bank account with your individual CDP Securities account, the accrued interest for cash investments will be automatically paid into that said account.
If it is an SRS investment, the interest will directly go into your SRS account.
You can redeem your savings bonds in any given month with no penalty. Also, the principal amount and the accrued interest will be paid on the second business day of the subsequent month. These amounts must always be in multiples of $500.
SSB is non-transferable except for specific instances like the death of the bondholder. Given that the former situation happens, SSB may be transferred to the lawful beneficiary based on the person’s will. The money to be transferred will not be limited to the capped limit of $200 000.
Also, because SSBs are non-marketable securities, they cannot be bought, sold, or traded by any means.
Current SSB investment yields
The investment yield is basically the income return on an investment whereby the yield is commonly expressed through an annual percentage rate based on either the investment’s cost, market value or face value. When you buy SSB units, you will see a rather slow but steady return on your part. Hence, low-risk for you when you invest in SSB.
It is vital to highlight that the current SSB investment yield is not as high as it was during the early years. SSB returns used to go over 2% p.a. ceiling value but in recent years they have gradually dropped.
As of March 2020, SSB investment yield is at interest rates of 1.71% per annum for the next 10 years. If the savings bonds that you hold are for a period of 1 year provided with 2 semi-annual payments, the interest rate of SSB is 1.43% per year.
Based on the most recent month of March 2020, the interest rate is 1.71% per year, so you should expect that $10,000 will grow to $11,720 after 10 years. The previous month, February’s bond yield was 1.75% per year for 10 years while 1.54% per year for 1 year. We can see that there is a slight decline of 0.04% for the bond yields per annum for a period of 10 years.
So, is it doing as well as we think it is? Perhaps the current SSB investment yield could do better. But bear in mind that the figure is subject to change from time to time and that investing in SSB will definitely not be a loss to you at all due to the risk-free investment tenure. Not only that, it is also backed by the Singapore Government, so investing in these savings bonds shouldn’t be a threat or a concern.
If you want to keep updated on the most current SSB investment yield, do note that the new interest rates will be updated every month via ATM subscription.
You might want to know what your returns would look like after investing in SSB. Well, Singapore Savings Bond will offer a return that is parallel to the period of time that you keep them saved. Initially, you might receive a lower interest, but over time you will receive higher interest amounts. In short, if you hold your SSB for a longer period, your return will evidently be higher.
So, what are the approximate average returns? Firstly, you need to know that the interest rates of the SSB account issue is based on the average of SGS yields the month prior to the next issue.
How to calculate the interest rates then, you may ask?
Basically, if you managed to hold your Singapore Savings Bond for a full period of 10 years, the average returns that you will get is based on the average 10 year SGS yield of the month before you invested in SSB. Note that, in the past decade, the 10-year SGS yield has been ranging from 2% to 3% at most.
Following the most recent average return value per year, the value is at 1.71%. So, if you had invested $1000 in your SSB account and if you hold it for 10 years, the interest rates will make it up to 1.71% and hence you will get a total interest of $171.
Who can buy?
Singapore Savings Bond was launched by the Singapore Government to offer Singaporeans safe and low-risk returns in the long term. Any individuals who are interested to be an investor in this Savings Bond can do so with simple regulations. As these savings bonds were introduced specifically for individual investors, corporate entities are not allowed to purchase Singapore Savings Bond. There are features of these savings bonds such as the small minimum investment amount and also the non-transferability which are meant only for individual investors. As such, corporates, institutions or organizations might want to consider investing in the conventional SGS instead as there is no limit to the minimum investment amount.
It should be noted that although only individual investors are allowed to invest in Singapore Savings Bond, there is a minimum age requirement that these individuals must adhere to. In order to open an individual CDP Securities account or Supplementary Retirement Scheme (SRS) account which is a requirement to hold an SSB account, that said individual must be at least 18 years old and above.
On another note, if you are a foreigner or not a Singapore resident, you are also eligible to purchase this savings bonds. According to the Monetary Authority of Singapore, you may purchase SSB as long as you have an individual CDP Securities account or SRS account and also any bank account of UOB, OCBC, or DBS/POSB in Singapore.
How to start the investment
Now, how does one start investing in Singapore Savings Bond? Worry not, here we have listed out three easy steps to help guide you in starting an investment through Singapore Savings Bond.
Step 1: Open a local bank account
It is crucial for you to have a bank account with any of these banks; DBS/POSB, OCBC or UOB as this is an essential requirement to apply for SSB.
You need to make sure that you have an ATM card or access to internet banking once you have already opened the bank account.
If you still have yet to open one, just pay a visit to any of the participating banks’ branches mentioned. No worries, there are many branches of these banks located in Singapore so finding your way to one wouldn’t be a problem.
Next, if you are planning to use cash, what you need to do is to open an individual CDP Securities account and then link it to your existing bank account through DCS application. If you are applying using SRS funds, just open an SRS account with any of the three participating banks stated previously.
Step 2: Apply for Singapore Savings Bond
Now that you have fulfilled the requirements, it’s time for you to do the most important step. Apply for Singapore Savings Bond!
Do note that for every start of the month, there will be a new savings bonds released for an application period of around 3 weeks. Hence, this is the time for you to stay alert! Keep yourself updated by always keeping track of their website.
During this period of 3 weeks, you can go ahead and submit an application for SSB through iBanking or any ATM machines. You will have to provide your CDP account number and next, specify the amount that you intend to invest without committing to a tenure.
All in all, the amount of money that you will take out for this process is the amount of your investment and also a $2 processing fee. This amount will then simply be deducted from your bank account.
Step 3: Secure your SSB
Hurrah! Now all that’s left to do is just to wait until the end of the month to find out if your application was a success. If yes, then your savings bonds are now secured! If there is an oversubscription for that month, you will not get the supposed amount that you have secured. But, worry not! The remaining amount will be refunded into your bank account the following day.
Typically, savings bonds will officially be released on the first business day of the next month after your application has been secured. CDP will notify you by post so you will start receiving your interest payments at a scheduled period of 6 months. So now you can enjoy getting your returns with no worries.
In a nutshell, we believe that investing in Singapore Savings Bond is a great move in the long run. Not only is it safe as it is fully backed by the Government, but it also guarantees you great interest payments with no risks!
You can enjoy great benefits just by investing as low as $500 through SSB whereby you can have savings for retirement. This is because SSB acts as a flexible option for you to retain the value of your nest egg. You can also set some money aside for when you’re having financial constraints and at the same time this gives you the chance to diversify your investments.
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