Singapore Savings Bonds Hack: Should You Switch To An SSB With Higher Interest Rate?
Is The Singapore Savings Bond A Good Investment?
We’ve talked about Singapore Savings Bonds at length before and debated about whether they’re a good investment.
In case you’re wondering what are SSBs…
They’re basically bonds issued by the Singapore government as a safe and flexible option for long-term saving of up to 10 years.
But if you’re here, you already know what’re SSBs and are already considering or have them as part of your portfolio.
So what you want are SSB hacks and other ways to see if you can earn even more on top of what the bonds will give you.
For example, a very common question that most people would have is: what if next month’s SSB interest rates are better than the SSB you bought for this month?
Let’s find out.
Is There Any Advantage For Investing In SSBs?
Some of the most obvious advantages of investing in SSBs include:
- No penalty if you choose to redeem your bonds early (in financial terms, you have liquidity)
- The longer you hold onto the bond, the more interest you will earn
- One of the safest investment products in the market as it is backed by the Singapore Government
- Can start investing with as little as $500
And here’re some of the disadvantages:
- Interest rate is low initially and only gets higher towards maturity
- Long-horizon of 10 years
- SSB interest rates change every month so it’s not possible for investors to plan ahead
Here’re the considerations at a glance:
|Singapore Savings Bond||Bank Savings Account||Bank Fixed Deposits|
|Low Barrier Of Entry||Yes||Yes||Depends|
|Returns >1% Per Annum||Yes||No||Depends|
So What Are The SSB Interest Rates?
As an investor, your potential returns would be your most immediate concern when deciding if a financial instrument is worth your time.
So if you’re wondering what the interest rates of the outstanding Singapore Savings Bonds are like…
Here’s a look a brief for the average per annum interest you’d earned after 1 year, 5 years, and 10 years:
|Singapore Savings Bond Issued||Avg p.a. return after 1 Year||Avg p.a. return after 5 Years||Avg p.a. return after 10 Years|
You’ll notice that the SSB interest rates have been on a decline recently.
But finger crossed, we’re hoping that the SSB interest rates will recover to its former glory.
When that happens, then this SSB hack which we’re going to talk about might come in handy.
A Possible SSB Hack To Up Your SSB Investing Game
What happens if you’ve already committed to an earlier SSB but the next issuance promises better returns?
According to the Seedly Personal Finance Community, there was a suggestion to
- Withdraw whatever amount is invested in the bonds which has a lower rate of return, then
- Invest the same amount in a bond with a higher rate of return
The problem here is that there’s a transaction fee of S$2 charged each time you withdraw or invest in SSBs.
If you withdrew and re-invested the amount into SSBs, you will incur a loss of S$4.
So when will this make sense?
Scenario 1: You Withdraw And Invest In Next Month’s SSB
Let’s say you:
- Are already invested in an August 2017 issued SSB for 2.06% returns
- Realise that the September 2017 issued SSB gives 2.12% returns (0.06% difference in returns)
Should you redeem your August issued SSB and re-invest that money in the September issued SSB instead?
|Percentage of fees|
|Total Interest from Aug 2017 contract||Total Interest from Sep 2017 contract||Difference in rate between SSB||Is the return more than $4?|
As shown in the table above, it’ll only make sense if you invested at least S$1,000.
Note: depending on the amount you invested initially, you might receive a healthy sum of pro-rated interest despite the early withdrawal.
Scenario 2: You Withdraw And Invest In Next Year’s SSB
Now, let’s say you:
- Are already invested in a May 2016 issued SSB for 2.09% returns
- Learn that the May 2017 issued SSB gives 2.12% returns (0.22% difference in returns)
So should you redeem your May 2016 issued SSB, that you’ve already been holding for a year.
And re-invest that money in the May 2017 issued SSB instead?
We ran some numbers and here’s what we found:
|Initial Amount Invested|
|May 2016 SSB if hold till maturity (10 Years) earns:|
|May 2017 SSB if hold till maturity (10 Years) earns:|
|Pro-rated interest from early redemption of May 2016 SSB after 1 Year||Total extra interest earned
Even with the minimum investment of S$500, redeeming your May 2016 SSB a year later and re-investing that same amount into the May 2017 issued SSB you will net you an extra S$18 interest.
After deducting the loss of S$4 (remember the S$2 transaction fee?), you still pocket an extra S$14 interest after switching to the May 2017 issued SSB.
However, this really depends on a case-by-case basis so you’ll need to do a little math to figure out if it’s worth redeeming early and re-investing into another SSB issued at a later date.
So… How Do I Redeem A Singapore Savings Bond?
When your SSB fully matures – 10 years from its issuance date – your initial principal and accrued interest will be credited to your bank account (DBS/POSB, OCBC, or UOB), which you used to purchase the SSB via Direct Crediting Service (DCS).
If you used your SRS funds to purchase the SSB, the payout will be credited to your SRS account instead.
But if you choose to redeem your SSB early, then you’ll have to submit your redemption request through your bank’s ATM or internet banking service instead.
Similarly for SSBs purchased with SRS, you can submit your redemption request through your bank’s internet banking service.
And as mentioned earlier, a S$2 transaction fee will apply for each redemption request.
Can I Make A Partial Redemption Instead?
Yes, you can!
The minimum redemption amount is S$500.
So you can redeem in multiples of S$500 or up to the amount you invested.
You will receive the amount you requested in full, along with any accrued interest.
Are There Other Alternatives To SSB?
Since we’re looking at a 10-year investment horizon…
Here are some other alternatives which you can consider depending on whether you want liquidity or higher interest:
|Financial Product(s)||Investment Horizon||Liquidity||Annual Returns|
|Singapore Savings Bond|
|Yes||Between 1% to 2%|
|Short-Term Endowment Plans||Short|
(3 to 5 years)
|No||1% to 3%|
|High Interest Savings Account||None||Yes||0.05% to 2%|
As you can tell, it’s usually a case of having to choose one over the other.
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