How Is The Interest Rate For Singapore Savings Bond (SSB) Determined?
 
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How Is The Interest Rate For Singapore Savings Bond (SSB) Determined?

Ming Feng
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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?

attention
Source: giphy

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 Bond(SSB) Interest Rates Over Time

SSB returns 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 onboard a bond that gives you a higher interest rate, it requires time and effort to really put it into action.

no time
Source: giphy

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 Interest Rate For Singapore Savings Bond(SSB)?

Interest Rate For SSB, How Is It Determined?
Source: Seedly Community

Warning: You are about to get your mind blown.

mindblown
Source: giphy

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.

What’s The Formula To Calculate SSB’s Interest Rate?

Explosion mindblown
Source: giphy

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

Formula to calculate SSB interest rate
Source: SGS

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

Asian Math
Source: thefunnymeme

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

Step Up Movie
Source: giphy

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 practise 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.


Historical Interest Rates Of Singapore Savings Bonds (SSB)

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 in 1 year, 3 years, 5 years and 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 and short term returns of SSB, compiling all the bonds released from the year 2018 till today.

Historical Interest Rates Of Singapore Savings Bonds (1 Year)

On average, the SSB gives an investor a 1.74% return on their capital if they invest in the bond for a year.

Issue Date Of Savings BondsAverage Return Per Annum (%)
(1 Year)
3 June 20191.88
2 May 20191.95
1 April 20191.96
1 March 20191.95
1 February 20191.98
2 January 20192.01
3 December 20181.89
1 November 20181.8
1 October 20181.74
3 September 20181.75
1 August 20181.78
2 July 20181.72
1 June 20181.68
2 May 20181.65
2 April 20181.42
1 March 20181.42
1 February 20181.55
2 January 20181.32

Historical Interest Rates Of Singapore Savings Bonds (3 Year)

On average, the SSB gives an investor a 1.92% return on their capital if they hold on to the bond for 3 years.

Issue Date Of Savings BondsAverage Return Per Annum (%)
(3 Year)
3 June 20191.88
2 May 20191.95
1 April 20191.96
1 March 20191.96
1 February 20191.98
2 January 20192.13
3 December 20182.15
1 November 20182.05
1 October 20182.01
3 September 20181.99
1 August 20182.1
2 July 20182.08
1 June 20182.01
2 May 20181.91
2 April 20181.73
1 March 20181.57
1 February 20181.6
2 January 20181.53

Historical Interest Rates Of Singapore Savings Bonds (5 Year)

The SSB gives investors an average return of 2.05% if they invest in the SSB for 5 years.

Issue Date Of Savings BondsAverage Return Per Annum (%)
(5 Year)
3 June 20191.96
2 May 20192
1 April 20192.01
1 March 20192.01
1 February 20192.05
2 January 20192.24
3 December 20182.32
1 November 20182.22
1 October 20182.15
3 September 20182.17
1 August 20182.29
2 July 20182.24
1 June 20182.1
2 May 20182.08
2 April 20181.96
1 March 20181.73
1 February 20181.69
2 January 20181.68

Historical Interest Rates Of Singapore Savings Bonds (10 Year)

Should investors hold on to their SSB till maturity, the returns are quite good at an average of 2.32%, considering that it is close to risk-free.

Issue Date Of Savings BondsAverage Return Per Annum (%)
(10 Year)
3 June 20192.13
2 May 20192.16
1 April 20192.16
1 March 20192.18
1 February 20192.2
2 January 20192.45
3 December 20182.57
1 November 20182.48
1 October 20182.42
3 September 20182.44
1 August 20182.57
2 July 20182.63
1 June 20182.43
2 May 20182.39
2 April 20182.31
1 March 20182.11
1 February 20182.04
2 January 20182.13

Is SSB worth investing in?
Source: Seedly Community

Is Singapore Savings Bond Worth Buying?

Buying Singapore Savings Bonds make 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 to early withdrawals
  • Interest payouts are regular and on time, with zero lock-in periods

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About Ming Feng
A stint in Bloomberg gifted me with a beer belly, which only grew larger when I moved on to become a Professional Trader. Now I turn caffeine into digestible finance-related content.
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