Bond

Singapore Savings Bond (SSB)

Singapore Savings bond (SSB) is a financial instrument that is backed by the government offering an average compounded return of 2-3% p.a. (Much higher than savings account) SSB was introduced on October 2015 and there will be issuance of the bond every month. The government is committed to continue the issuance of SSB for a period of 5 years. 

Pros and Cons 

Above is the summary for investing in SSB. As you can see, the pros greatly outweigh the cons. Now let's analyse the Pros/Cons in detail. 

Pros

Return-Earn an average compounded annual returns of 2-3% if you managed to hold the bond for the full duration of 10 years. (A much higher return than savings account)

Risk-No risk of losing your initial capital invested as it is backed by Singapore government. (Singapore has been running on account surplus over the years)

Capital requirement-You can start investing in SSB with just $500! (Investment increment in multiple of $500.)

No penalty for early redemption-You can redeem the full amount invested at no penalty and even earn accrued interest!

Portfolio diversification-Diversify some holdings to SSB will reduce your overall portfolio risk

Flat bond price-Unlike typical bonds, SSB does not fluctuate with interest rate changes. SSB will always be trading at face value.

Cons

Fund lock-down (up to 1 month)-Redemption of funds will only be paid out on the 2nd business day of the following month. Therefore if you make a redemption request on the 1st working day of the month, you can only receive your fund next month.  

$2 application/redemption fee-Every application and redemption request you made will incurred a $2 fee. Therefore if you made several application and redemption request, it will add up to a cost. (Usually that's not the case) 

Features of SSB

Product information

*Above is some basic product information of SSB

Interest rate

*Above is an sample interest payout of June SSB (To be issued on July 2017)

How you read this table is pretty simple! Let's say you invested $1,000 on this SSB.

• Looking at the interest, % row, you will be paid a net interest of $10.40 (0.0104 x $1,000) on the 1st year, $13.90  (0.0139 x $1,000) on the 2nd year, $16.40 (0.0164 x $1,000) on the 3rd year and so on
• Do note that interest is payable semiannually so you will received 2 payment of interest every year. E.g. $5.20 ($10.40/2) on 1st half of the 1st year and $5.20 on 2nd half of the 1st year
• Looking at the average return per year, % row, the figure you see here is the compounded returns per year. Take for example for year 3, you will earn a net interest of $40.70 ($10.40+ $13.90+$16.40). Using the figure on year 3 which is 1.35, you can also get a figure roughly around $40.70 ($1,000 x 1.0135^3 - $1000) 
• As you can notice, the longer you hold your SSB, the higher the interest you will receive each year. Therefore is recommended that you should hold your SSB for the full duration of 10 years to reap the maximum return of this investment
• For a more detailed calculation of interest, you can visit: http://www.sgs.gov.sg/savingsbonds/Your-SSB/Calculator.aspx 

Do note that the interest do varies for every monthly issuance of SSB. For historical interest rate of SSB, you can visit: https://secure.sgs.gov.sg/fdanet/StepupInterest.aspx 

Below is the interest offered for the past few months.

Application period

*Above is the application period for June SSB (To be issued on July 2017)

The application of each Savings Bond issue opens on 6pm on the 1st business day of the month and closes at 9pm on the 4th last business day of the month. Taking in consideration you can't withdraw your application, it is recommended that you apply near the closing date to reduce your fund lockdown period. Do note the maximum application amount for any month of SSB issuance is $50,000 per person.

On the application result day, you will know the amount of SSB allocated to you. Based on the historical trend, SSB has never been oversubscribed before, therefore you will most likely be allocated the actual amount you apply for. To check out on the historical subscription rate, you can visit: https://secure.sgs.gov.sg/fdanet/AmountOutstanding.aspx   

On the Issuance day, you will become the holder of SSB for the amount you are allocated on the application day. You can start redeeming your SSB after the issuance day. 

Redemption period

*Above is the redemption period for any SSB bond for the month June 2017

The redemption period opens at 6pm on the 1st business day of each month and closes at 9pm on the 4th last business day of the month. Taking in consideration you can only receive your withdrawal on the payout day which is 2nd business day of the following month, it is recommended that you redeem near the closing date to minimise unnecessary redemption and opportunity cost of forgoing future interest of SSB. 

You can redeem full amount or partial amount in multiple of $500 of the SSB you owned. There will be no penalty for early withdrawal and you still get accrued interest on top of that! (how good is that!)

How can you apply?

Key requirement

• Must be at least 18 years old
• Have an account opened with any of the local bank (DBS/OCBC/UOB)
• Have a Central Depository (CDP) account opened

You can visit any of the local bank branch to open an account. Application of SSB can only be through ATMs or Internet Banking of these participating local banks.

CDP is the custodian account for SSB and will process application, interest payments and redemptions. You can apply for a CDP account by following the steps on CDP website: https://www1.cdp.sgx.com/sgx-cdp-web/login

Once CDP account is opened, link the account to your bank account. Every interest or redemption payment will be credited to the designated bank account linked by your CDP.

Applying through Internet banking

Login into your Internet banking and under invest tab select Singapore government securities (SGS) to reach this page. Select Singapore Savings bonds application and fill in the respective details to complete the application process. There will be a $2 transaction fee charged for this application. After applying, wait for the application result day to see the amount of SSB allocated to you. On the issuance day, SSB will be reflected on your CDP account. (successfully invested in SSB)

Conclusion

If you are a risk-adverse individual and hope for a much higher return than savings account, SSB is definitely suitable for you. SSB has a step-up interest calculation meaning the longer you hold your investment, the higher your returns will be. Therefore it is advisable to hold your investment till the end of investment period of 10 years without making any redemption to maximise your returns.

Lastly do share around this great investment opportunity to your friends and family!

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Last updated Jun 2017