Singapore Savings Bonds

With the applications for the Singapore Savings Bonds opening in the next week, this post is going to be an update (more like an add-on) to the 2 previous posts I've done on the Singapore Savings Bonds previously, which are Singapore Savings Bonds (SSBs) Issued in October and Singapore Savings Bonds (SSBs) and will be more on the up and downsides as compared to fixed-term government bonds, SGS and fixed deposits.

(Image source: https://www.drwealth.com/2015/05/12/all-you-need-to-know-about-the-singapore-savings-bonds/)

Some of the basic info: You can apply for the bonds at the ATMs of local banks or via DBS/POSB Internet Banking, you can also go to these places to redeem the bonds. The minimum investment amount is $500 and larger amounts in multiples of $500, up to $50k. The interest rates that you will get is the same as the return if you invested in a Singapore Government Securities (SGS) for the same amount of time.

Plus-sides over fixed-term Singapore government bonds, SGS: You can take out the money any time you want, in multiples of $500, but you need to put in an application in between the first day of the month and 5 business days before the month ends (it closes 4 business days before the end of the month) and you will only get your money back on the 2nd day of the following month. This is good as you are not tied into the bond for its entire tenure and if any emergency crops up, you can withdraw your money.

Plus-sides over fixed deposits: The bonds are backed by the Singapore Government, which I think it's safer than the banks. But in any case, the SDIC insures $50,000 of your deposits so it's almost the same, you just get more money insured by the government. Also, these bonds have longer tenures which in turn gives you higher interest rates if you hold them for longer periods. The interest earned on these bonds also will not be forfeited if you redeem it early while it may be for fixed deposits.

Downsides against SGS: You lose some of the compounding effect. Since the bonds start out with a low interest rate and increases over time, you are unable to compound the money that you would have gotten earlier on if you invested in a SGS bond with a fixed payment. The interest rate from what I understand is calculated on a simple interest basis, so there may be a loss in the compounding effect, but this isn't very large amount for most of us.

Downsides against fixed deposits: Promotional fixed deposit interest rates have gone up after the SSBs were to be issued. If you got a fixed deposits at say a rate of 1.5%, it would beat the return that you would have gotten if you have placed your money in SSBs for 1 year, which would be less than 1%., so there are fixed deposits that would trump the SSBs in the short term.

The Fed also seems to have put off the September rate hike (one of the possible reasons for the rally in the last 2 days), so SSB interest rates may not go up a lot in the short term so starting to invest in them now may be a good idea. But then there may be an oversubscription to the bonds, in which case you may only get a portion of the amount that you subscribed to.

For more info on the bonds, you can also go to the Singapore Savings Bonds website

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