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The Singapore Savings Bond (SSB) is a type of Singapore Government Security that is suitable for individuals. It was introduced to provide a long-term savings option which complements other instruments like endowments, equities, and deposit accounts.
One benefit of the SSB include a step-up interest scheme, which provides higher interest the longer you hold the bond. A new bond is issued every month, and returns are deposited to your account every 6 months. The government has stated that they intend to issue one bond a month up until 2020.
Even though the bond is considered a long-term investment and has a maturity period of 10 years, its flexible structure allows you to exit your investment at any time, with no penalties. You don’t have to decide at the beginning when you want to exit the bond, as you can do so any time and get your funds back the next month.
The SSB also has a low barrier to entry as compared to other savings options, as it only requires S$500 to start. Investors can apply for the bonds through their participating banks after they have opened a CDP Securities Account
Most importantly, funds invested in the SSB are backed by the government and are not used to finance its expenditure. Your capital is always guaranteed and you will receive all of it along with its corresponding interest upon withdrawal.
The table below shows the returns of the latest issue of the SSB from 2nd May 2018.
Using the bond above, we can see that the longer you hold on to the investment, the more interest you will receive when you redeem it. This is the step-up interest scheme at work, and you can hold on to the bond for as long as you want for up to 10 years.
Even if you only hold the bond for 1 year, you will already have made more returns as compared to a fixed deposit, which only offers an average of 0.7% per year if you deposit the minimum sum of $1,000.
The other instrument that’s commonly compared to the SSB is the Singapore Government Securities Treasury Bills (T-Bills). T-Bills are open to all corporate entities as well as individuals and can have a much longer term as compared to the SSB.
It has a minimum investment of S$1,000, which raises the barrier to entry by a little, but its main disadvantage is that your capital is not guaranteed. T-Bills are tradable on the Singapore Exchange (SGX) and withdrawal is subject to prevailing market prices. You could make gains or losses depending on when you choose to exit.
The SSB is a good instrument to add to your portfolio regardless of whether you’re a new or experienced investor. If you’ve never invested before, the SSB is an easy way to start off, as it is very low-risk and flexible while providing adequate returns.
In addition, if you decide that you no longer want to hold on to it for any reason, you can exit any time with your principal intact.
An experienced investor can also benefit from the SSB by using it to build a good asset mix in their portfolio. Even if you have a high risk appetite, a small portion of low-risk investments within your portfolio is necessary to balance out the risk from other instruments. A good blend of equities and fixed income asset classes (like the SSB) is a good guiding principle in determining a suitable asset mix for an investment portfolio.
However, the returns provided by the SSB are much less than traditional bonds, as the investor is not exposed to interest rate risk. Other bond prices can fluctuate depending on market conditions, making it difficult for investors to redeem a bond before it matures. As the SSB allows redemption at any time, investors don’t have to bear any risk, resulting in lower returns.
Another potential disadvantage is that the rate of returns are fixed depending on when you buy the bond. If interest rates rise in the future, investors who bought a bond with a lower rate of return will not benefit. These are some tradeoffs investors choose to make for the stability of the SSB, and you may want to consider them in totality before applying.
To apply for an SSB, you need to have a bank account with any one of the participating banks, which are currently DBS/POSB, OCBC, or UOB.
After that, you need to open an Individual CDP Securities account if you don’t have one and link it to your bank account by applying for Direct Crediting Service (DCS) at the same time.
Once the account is open, you can apply for the SSB through your bank’s ATM or via online banking. The money will be deducted immediately and you will be charged a transaction fee of S$2.
As mentioned above, the minimum investment amount is S$500, and you can only invest in increments of S$500. After your application, MAS will perform the overall allotment and you will be notified by CDP via mail of the amount of bonds you have received.
If the bond is oversubscribed, you may not receive the amount you applied for, and CDP will refund the outstanding amount to you. For more information on application deadlines and the allotment process, you can read through SSB’s frequently asked questions.