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Here Are Some Hacks You Need To Know For Singapore Savings Bonds (SSB)

2 min read

Singapore Savings Bonds (SSB)

Singapore Savings Bonds are issued by the Singapore Government, to provide Singaporeans with a safe and flexible option for a long-term saving of up to 10 years. What happens if the interest rate that is declared is a better rate than what you invested at? Let us find out more below!

Advantages:
  • No penalty for individuals who wish to get their investment back early (the longer one holds on to the bond, he is then rewarded with a higher interest rate)
  • One of the safest product rating in the market (backed by the Singapore Government)
  • Start investing with as little as S$500

Singapore Savings Bonds vs Banks vs fixed deposits

Disadvantages:
  • The interest rate is low initially and only gets higher towards maturity
  • Long-horizon of 10 years
  • The Singapore Savings Bonds promise different returns every month, which makes it impossible for investors to plan ahead
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Possible Hack to your SSB investing game

According to the Seedly Personal Finance Community, there was a suggestion

  • Withdraw: Whatever that is invested in the bonds with a lower rate of return
  • Invest: The same amount in the bond with a higher rate of return

Additional Considerations:

  • S$2 transaction fee will be charged by the bank each time you withdraw or invest in the SSB
  • This means that each investment and withdrawal process incurs a S$4 cost on investors

In this article, we explore the different circumstances to decide when this makes sense.

Scenario 1: Investor withdraw and invest in next month’s SSB

Situation Assuming:

  • An investor invested in an August 2017 SSB for 2.06% returns
  • He realizes that the September 2017 SSB is giving a 2.12% returns. The difference between both bonds is at 0.06%.
  • He subsequently sold his August 2017 SSB to buy the September 2017 SSB, in what case will this makes sense?
Amount invested
($)
Percentage of fees
(%)
Total Interest from Aug 2017 contractTotal Interest from Sep 2017 contractDifference in rate between SSBIs the return more than $4?
5000.8$105$1080.06%NO
10000.4$210$217YES

As illustrated above, the decision to switch his investment to the September 2017 SSB makes sense if his investment is more than S$1,000.

*Do note that depending on the amount one invested, investors may even receive a pro-rated interest for their early withdrawal. (eg. a $50,000 investment in the Aug 2017 SSB brings investor $44 in interest earn should he redeem it a month later)

Scenario 2: Investor withdraw and invest in next year’s SSB

Now, assuming this:

  • An investor invested in a May 2016 SSB for 2.09% effective returns per year
  • He realized that the May 2017 SSB is giving a 2.32% returns. The difference between both bonds is at 0.22%.
  • He sold his May 2016 SSB a year later to buy the May 2017 SSB, in what case will this makes sense?

With that, we ran some numbers and here’s what we found

Amount invested
($)
May 2016 SSB if hold till maturity earns:
($)
May 2017 SSB if hold till maturity earns:
($)
Pro-rated interest from early redemption of May 2016 SSBTotal extra interest earned
($)
500106119518
1,0002122371035
5,0001,0621,18749174
50,00010,62011,8654851,730
  • Even with the minimum investment of S$500, one will receive an extra S$18 interest earned
  • Less the cost of S$4, the interest earned is 2.8% of the initial S$500 for an additional year which seems like a good deal.
  • This percentage increases with every increase in initial capital invested. Hence, it makes sense for a swap for an additional year.
  • One should, however, look at each contract on a case by case basis before deciding if it is worth it to do so. The difference in interest rate plays a key role in determining if it makes sense to do so.

Further Reading: Other instruments to win the game of investing even more

Assuming a 10 years investment is too much to ask for, our community member Aik Kai listed out a few products out there to cater to one’s needs

ProductsInvestment HorizonFlexibilityReturns
Singapore Savings Bond
(SSB)
Long
(10 years)
YESAbove 2%
Short term endowment
(eg. FWD and Great Eastern)
Short
(3 years)
NOAbout 2%
CIMB Fastsaver
(Savings account)
NoneYES1%

Got a question on Singapore Savings Bonds? Ask anonymously here and receive answers from our community! 

 

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