Singapore Savings Bonds – more updates about the programme released

The Monetary Authority of Singapore (MAS) has just released a press release with more details about the Singapore Savings Bonds (SSB) programme that I blogged about earlier.

1. SSB will only be available for individuals – will be launched in the second half of this year (New!)
2. Investors can put in a minimum of S$500, and in subsequent multiples of S$500, for 10 years (New!)
3. Savings Bonds are non-marketable securities and cannot be bought or sold in the secondary market (New!)
4. Interest will be paid every 6 months and at issuance, rates are fixed based on the prevailing SGS yields and locked in for each issue (New!)
5. There will be a limit to the total investment amount to maximise participation and provide a broad reach (New!)
6. Investors can opt for a monthly issuance of their money or choose to withdraw all of their money any time with no penalty
7. SSB will earn interest that is linked to long-term Singapore Government Securities rates
8. SSB interest rates will increase over time so the average interest rate will be higher the longer SSB is held
9. Savings Bonds programme is principal-guaranteed

Low barrier to invest and 6-month interest payout (Yay!)

The barrier to invest in SSB is a low sum of $500 which I would like to think that most middle-income Singaporeans should be able afford. This is half of what you would need to have in order to invest in a SGS bond or Treasury Bill. I also like that the payout of interest is set to every 6 months instead of once a year.

Ability to sell SSB and withdraw the money at any time without penalty (Yay!)

As an investor, the liquidity of bonds is always an issue because premature sale of bonds may result a loss in principal or interest. Giving bond-holders the flexibility of selling SSB without incurring any penalty is great because they can sell their SSB to capitalise on any investment opportunity that they come across.

Interest rate tied to Singapore Government Securities (SGS) rates (Meh!)

As SSB interest rates will be tied to SGS bond yields and increased over time, let’s look at how our SGS treasury bills and bonds are faring today (30 March 2015).

Year	1-Year	2-Year	5-Year	10-Year
Yield	1.00%	1.32%	1.88%	2.32%

If you invest $1,000 in SSB today, you will receive 1% interest ($10) in a year. If you put the same amount of money in a fixed deposit, the highest interest rate in the market today is at 0.63% ($6.30) offered by RHB Singapore. Sounds like SSB is good right?

Let’s say you put in another $1,000 in the second year because you like what SSB is offering. The average interest rate you will receive for the $2,000 worth of bonds is now 1.16% ($23.20), an average of 1-year and 2-year bond yields. The highest 2-year fixed deposit interest rate available today is 1.13% ($22.60) offered by RHB Singapore. In both cases, SSB offers a slightly higher interest rate.

A fluctuating interest rate (Yay and Meh!)

If you look at the SGS website, you would see that bond yields fluctuate every day. As SSB interest rates are tied to SGS bond yields, you would expect them to fluctuate on a daily basis as well.

The fluctuation could go both ways for investors. Over the past week, we see 1-year SGS bond yields gradually inching up bit by bit to 1% as of 30th March. That is a good thing, but there are also cases where SGS bond yields decrease due to various factors. Fortunately SSB bond-holders will be able to sell at any point in time without incurring any penalty. That means if SGS bond yields are too low, one could always switch to fixed deposits or other forms of fixed income investments.

Will I invest in SSB if it was available today?

As of today, the interest rates offered by SSB is definitely better than the current fixed deposits offered in the market. However, I don’t have any fixed deposits under my name anyway. Instead, my money is all kept in my OCBC 360 account which generates 2.05% interest per year. That is definitely higher than what SSB is offering so I’m unlikely to make the switch.

I would adopt a wait-and-see approach and find out how the market reacts when SSB becomes a reality. Banks would definitely have to increase their fixed deposit interest rates to retain their customers. I’m also hearing rumours that the OCBC 360 account may have some adjustments made to their current interest rates so it may be a reason for me to switch to SSB too.

Here’s an infographic about the Singapore Savings Bond that was created by Business Time.