Here Are Some Hacks You Need To Know For Singapore Savings Bonds (SSB)
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!
- 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
- 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
- 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
- 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?
|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 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
|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 SSB||Total extra interest earned
- 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
|Singapore Savings Bond|
|Short term endowment|
(eg. FWD and Great Eastern)
Got a question on Singapore Savings Bonds? Ask anonymously here and receive answers from our community!
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