Thursday, April 2, 2015

2-3% Principal Guaranteed Investment

I know many of us have been trying to find places where we can put our money in-order to get better returns. At the same time, we don't want to take on too much risk and still get to grow our money. Good news! Just a few days ago, it was announced by the government and MAS that they are going to introduce something called the Singapore Savings Bonds programme to provide individual investors with a long-term savings option that offers safe returns. You might ask, how safe is safe? Are the returns high?

Details of the Singapore Savings Bonds Revealed

Bonds are normally considered safe investments especially when we talk about Singapore government bonds. They are almost risk free if you keep the bond all the way to maturity. You will get back the face value of the bond during maturity. In a way, as long as government bonds do not default (where the government goes bankrupt), we'll always somehow get our principle investment back.

However, the problem with normal government bonds is that it is still subjected to day to day price fluctuations. Yes, bond price can go up and down and if we sell it early, we could make a loss.

Now, this new savings bond is different from the normal government bonds which we often see. In my opinion, it is the safest investment which we can get while still earning decent returns. Here's why:

1. Principal Guaranteed

For this Singapore Savings Bonds, it is principle guaranteed. We can redeem the bond any time and we'll always get our investment amount back in full.

2. Monthly Issuance and flexible redemption

The bonds are issued monthly so we can buy the bonds monthly or redeem it monthly. It is so flexible that in case you really need the money, you can redeem it and still get back your capital without suffering any capital loss or penalty.

Best of all, any interest you get will be yours to keep.

3. Small investment amount

The minimum investment amount is $500 and thereafter in multiples of $500. There will be a maximum investment limit which will be announced later.

4. Step up Interest and term of 10 years

The interest rates paid are linked to the long term Singapore Government Securities (SGS) rates. Interest will be lower for the first year and will subsequently be higher for the next few years until year 10.

If we base on the prevailing SGS bond yield, on the first year, we should expect to get around 0.9%, on the second year around 1.5% and on the third year 2.4% and so forth. The actual rates will be given by MAS at a later date when the bonds are issued.

On average, you'll get around 2-3% (base on the current rate) if you hold the bond for 10 years. Interest rates can be lower or higher.

When will it be launched and How do I invest in it?

The Singapore Savings Bonds will likely be launched in the second half of 2015. MAS will provide more information on how to apply for the bonds at a later date.

I suppose applying for the bonds won't be that difficult. Probably we can do it through most of the major banks in Singapore or even apply it online.

In any case, this would be a good investment for those who want to get better returns for their money. It is principle guaranteed so there is practically no risks involved. I would definitely consider putting any of my spare cash into these bonds.

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