Singapore Savings Bonds Interest Rate Guide: How Is the Interest Rate for the Singapore Savings Bond (SSB) Determined?

Throughout our investment journey, it’s important to minimally beat the inflation rate when we invest. Over the years, there’s been one investment product in particular that constantly finds itself in the limelight with regard to this topic.

Can you guess which product or financial instrument is that?

Yes. It’s the humble Singapore Savings Bond (SSB)!

Ever since it was introduced on 1st October 2015, the Singapore Savings Bond (SSB) is kind of like the model student in a class of different investment products.

Think of Singapore Savings Bond as the class monitor.

While he may not necessarily be the top-scoring student, he is well-mannered, responsible, and exhibits rather predictable behaviour.

TL;DR: Singapore Savings Bonds Interest Rates Over Time

It is really frustrating to invest and lock in the return of SSB for a certain month, only to realise that you could have waited for one more month to get a higher return.

The same can be said for investors who are waiting for the right time to invest, only to realise that the next SSB interest rate is lower than the initial one.

While we do have an amazing hack on how you can jump on board a bond that gives you a higher interest rate, it requires time and effort to really put it into action.

Wouldn’t it be better if we could understand how the interest rates of SSB are determined?

And by extension, that might perhaps, allow us to make a calculated prediction as to the interest rate of next month’s bond?

What Affects the Singapore Savings Bonds Interest Rate?

Warning: You are about to get your mind blown.

The interest rate allocated to each month’s SSB is correlated to the long term Singapore Government Securities (SGS) yields. The yield refers to the earnings generated.

Here are four numbers you need to know in order to have an estimation of the month’s interest rate for SSB:

• The reference yield of 1-year SGS
• The reference yield of 2-years SGS
• The reference yield of 5-years SGS
• The reference yield of 10-years SGS

The reference yield, refers to the simple average of the respective daily SGS rates from the month, before the announcement of the SSB interest rate.

FYI: The SSB’s rate uses the 1,2,5 and 10-years SGS yields as a benchmark.

Singapore Savings Bond Calculator: What’s The Formula To Calculate the SSB Interest Rate?

If you wish to further blow your mind, here are the formulas to calculate the interest rate for the SSB:

Yeah… Some of you might be going, “What…”. While others might be more:

What If The SGS Yield Does Not Allow the Interest Rate Of SSB To “Step-Up”?

And no, I don’t mean like in the movie.

We’ve all heard this quote, “Good things happen to those who wait.” And it rings true with regard to the SSB.

The Singapore Savings Bond practises a step-up interest rate, which means that the longer you stay invested in the bond, the higher the annual return.

While our SSB’s interest rate uses the 1, 2, 5 and 10-years SGS yield as a benchmark, there will be occasions when the step-up interest rate is not possible.

For those who prefer the technical explanation for this, the two types of instances are caused by the inverted yield curve and the highly convex yield curve.

Should there be an occasion where either of these ‘curves’ happens, MAS will lower the coupon rates as necessary.

Singapore Savings Bonds Interest History

While the Singapore Savings Bond has a maturity date of 10 years, you can choose to liquidate it at any point without any penalty.

To better demonstrate the changes in the interest rate of SSB over time, we did a compilation of the average returns of SSB over 10 years.

The interest rate for SSB steps up every year. This means that the longer you invest in a particular contract for SSB, the higher the interest rate.

With that, we went on to calculate the average long term returns of SSB, compiling all the bonds released from the year 2015 till today.

Singapore Savings Bonds Interest History (10 Years)

Should investors hold on to their SSB till maturity, the returns are decent, with an average return of ~1.77% p.a. This is in light of the bonds being considered close to risk-free.

Are Singapore Savings Bonds Worth Buying? Singapore Savings Bonds Redemption and More

Buying Singapore Savings Bonds makes the most sense if you are looking to put your savings somewhere safe for years while at least beating inflation.

While investing in the SSB gives a return that is relatively low in comparison to some of the investment products out there such as ETFs, REITs, and certain stocks investment, there are numerous advantages to investing in the SSB.

Here are just some of the advantages which make SSBs a worthy investment:

• Low minimum investment cost of only $500
• Low risk since it is government-backed
• There is no penalty for early withdrawals
• Interest payouts are regular and on time, with zero lock-in periods.

Disclaimer: The information provided by Seedly serves as an educational piece and is not intended to be personalised investment advice. ​Readers should always do their own due diligence and consider their financial goals before investing in any investment product.