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!
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
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
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 contract | Total Interest from Sep 2017 contract | Difference in rate between SSB | Is the return more than $4? |
|---|---|---|---|---|---|
| 500 | 0.8 | $105 | $108 | 0.06% | NO |
| 1000 | 0.4 | $210 | $217 | YES |
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 SSB | Total extra interest earned ($) |
|---|---|---|---|---|
| 500 | 106 | 119 | 5 | 18 |
| 1,000 | 212 | 237 | 10 | 35 |
| 5,000 | 1,062 | 1,187 | 49 | 174 |
| 50,000 | 10,620 | 11,865 | 485 | 1,730 |
- 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
| Products | Investment Horizon | Flexibility | Returns |
|---|---|---|---|
| Singapore Savings Bond (SSB) | Long (10 years) | YES | Above 2% |
| Short term endowment (eg. FWD and Great Eastern) | Short (3 years) | NO | About 2% |
| CIMB Fastsaver (Savings account) | None | YES | 1% |
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